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Criteria for Philanthropy at Its Best® Benchmarks to Assess and Enhance Grantmaker Impact Copyright © 2009 National Committee for Responsive Philanthropy, Publishers, 2001 S Street NW, Suite 620, Washington, D.C. 20009. All rights reserved.

The chapters and discussion questions in this publication (except portions of which reprint permission must be obtained from the primary sources) may be freely reproduced for educational activities only. There is no requirement to obtain special permission for such uses. We do, however, ask that the following statement appear on all reproductions:

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ISBN 978-0-615-27727-1 National Committee for Responsive Philanthropy

Erratum Notice for Multi-Year Funding Data

November 2, 2012

In September 2012, NCRP learned that because of a programming error at the Foundation Center, the data on multi-year funding included in this publication were inaccurate. NCRP released a factsheet titled The Philanthropic Landscape: The State of Multi-Year Funding this fall. This factsheet includes corrected data for the 2004-2006 period covered in this publication. The factsheet serves to replace the multi-year data analysis included in the Effectiveness chapter of this book, as well as additional data on this type of grantmaking included in the data appendix. All other data have been validated. NCRP’s recommendation that grantmaker’s provide at least 50 percent of grant dollars as multi- year funding remains unchanged. Criteria for Philanthropy at Its Best® Benchmarks to Assess and Enhance Grantmaker Impact Acknowledgements

Over the past year, numerous people contributed Special thanks to the following for their to the development of this report. additional substantive assistance: Lori Bartczak, Rick Cohen, Kathleen Enright, Project Co-Directors: Aaron Dorfman Andrew Grant-Thomas, Robert Grimm, David and Niki Jagpal Harder, Nathan Henderson-James, Mark Kramer, Primary Author: Niki Jagpal Steven Lawrence, J. McCray, Larry McGill, Chuck Contributing Authors: Aaron Dorfman, McLean, Ron McKinley, Barry Knight, Spence john a. powell, Julia Craig and Lisa Ranghelli Limbocker, Marcy Murninghan, Terry Odendahl, Research Assistance: Julia Craig, Rob Reich, Mark Rosenman and Michael Seltzer. Matthew P. Maronick, Charles M. Fernández Primary Editor: Kristina C. Moore And also thanks to the more than sixty different grantmakers that provided unrestricted core oper- NCRP is especially grateful to the NCRP Board of ating support, which made this project possible. Directors, Research Advisory Committee and staff. A list of funders is available at www.ncrp.org.

ABOUT THE AUTHOR Niki Jagpal joined NCRP in 2008 and has a broad range of experience working on research and policy advocacy in the nonprofit sector. Most recently, she was a member of the Research Department at Media Matters for America, a web-based progressive research and information center. Previously, Niki worked for several years at Ipas, an organization that works to enhance women’s reproductive rights and health. She helped expand the organization’s region-wide work in Asia and the United States. She has extensive experience organizing and mobilizing grassroots participation in local and national advocacy campaigns, and also has worked with local groups to increase bipartisan civic engagement and improve election protection. She has worked at the Center for Community Change, the Center for Juvenile Justice Reform at Georgetown University, and the Fannie Mae Foundation. She led workshops and given presentations at local and national universities to engage the next generation of nonprofit leaders. Niki holds a bachelor’s degree in history and cultural anthropology from Duke University and a master of public policy from Georgetown.

Copyediting: “Editor-in-Chief” of Edit Avenue • Book Design and Layout: Dominic Vecchiollo Printing: VMW Printing Inc. Table of Contents

Preface: Challenging Grantmakers to Strengthen Communities...... vii

Criteria for Philanthropy at Its Best...... xii

Chapter I: Values ...... 1 A. At a Glance...... 2 B. Precedents and Rationales for Philanthropy that Benefits Marginalized Communities...... 4 C. Income and Wealth Inequality ...... 7 D. Racial Inequality and Structural Racialization...... 10 E. Systems Thinking ...... 15 F. Advocacy, Organizing and Civic Engagement: Practical Strategies for a Systems Approach ...... 17 G. Setting the Bar for Philanthropy at Its Best ...... 23 H. Conclusion ...... 24 I. Discussion Questions...... 25

Chapter II: Effectiveness ...... 31 A. At a Glance...... 32 B. General Operating Support ...... 34 C. Multi-year Funding ...... 38 D. Administrative Requirements ...... 40 E. Partnerships ...... 44 F. Setting the Bar for Philanthropy at Its Best ...... 47 G. Conclusion ...... 49 H. Discussion Questions ...... 50

(Continued on p. vi)

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact v National Committee for Responsive Philanthropy

Table of Contents (continued)

Chapter III: Ethics ...... 55 A. At a Glance...... 56 B. Board Composition ...... 61 C. Trustee Compensation...... 65 D. Policies and Practices that Support Ethical Behavior...... 68 E. Transparency and Disclosing Information Freely ...... 71 F. Conclusion: Setting the Bar for Philanthropy at Its Best ...... 75 G. Discussion Questions ...... 76

Chapter IV: Commitment...... 81 A. At a Glance...... 82 B. Payout ...... 84 C. Mission Investing ...... 90 D. Setting the Bar for Philanthropy at Its Best ...... 96 E. Conclusion ...... 99 F. Discussion Questions ...... 100

Data Appendix ...... 105

vi PREFACE Challenging Grantmakers to Strengthen Communities

WHY THESE CRITERIA? WHY NOW? to those in greatest need. Private enterprise provides Our nation is at a critical moment. The economy is in jobs and the economic engine that fuels our nation. crisis, the private sector is in turmoil and the civic sec- Civic sector organizations—including both institu- tor already is feeling the negative spillover effects. tional grantmakers and non-grantmaking nonprofits— But, as is true of all crises, this moment presents phi- play a crucial role in improving lives and strengthen- lanthropy with an opportunity. As White House Chief ing communities, often filling a void where govern- of Staff Rahm Emmanuel said recently, “You never ment and free enterprise fail to adequately meet pub- want a serious crisis to go to waste, and what I mean lic needs. As the public and private sectors reassess by that is an opportunity to do things that you didn't their institutional practices, grantmakers must do so, think you could do before.” The current challenges too. We need to ensure that foundations remain rel- present grantmakers with a chance to critically ana- evant and maximize the impact of their work, which lyze persistent problems that have been ignored for supplements the other sectors in important ways. too long. These difficult decisions and choices now Now is the moment when opportunity and need have become urgent issues. intersect in a way that is unprecedented in modern A crisis of this level compels us to consider new, history. Current philanthropic practice accomplishes sometimes radical, solutions. Americans recently many needed and beneficial things, but philanthropy elected the nation’s first African American president, is not sufficient in its current form to play the kind of reminding us all that our country is unique. It’s one substantive role required to help solve the most premised on opportunity, progress and constant urgent problems facing our nation and the world. change. Yet, as we celebrate this historic moment, Grantmakers simply are not delivering as much social our public and private sectors are engaged in critical benefit as they could or should be, raising the impor- self-analysis and reconsidering their practices to seek tant question of why this is so. out bold solutions. The time is now for philanthropy Our sector never can be a substitute for either the to do the same. Grantmakers, their nonprofit partners public or private sector, but grantmaking institutions and communities nationwide must heed this call and must do all that is within their power to ensure that consider altering current norms and practices signifi- the civic sector becomes the highest performing com- cantly. Now more than ever, it’s vitally important for plement to government and free enterprise. But what, innovative and rigorous self-assessment to ensure that specifically, should foundations and other institution- the civic sector is part of the solution to the pressing al grantmakers do to maximize their impact and best issues we face as a nation. And that’s exactly why our serve nonprofits, vulnerable communities and the Criteria for Philanthropy at Its Best is especially need- common good? That is the central question this doc- ed at this time. ument seeks to answer. As the world focuses on The private, public and civil society sectors all meeting the current challenges, institutional philan- contribute to nurturing the public good. Government thropy must ask itself some long overdue, perhaps dif- is obliged to protect its citizens and provide services ficult, questions. The National Committee for

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact vii National Committee for Responsive Philanthropy

Responsive Philanthropy (NCRP) has developed a set DEVELOPING THE CRITERIA of criteria to provide grantmakers with the tools to do NCRP just celebrated its 33rd anniversary. As the only precisely that. independent watchdog of foundations and institution- There’s a popular but overused saying in philan- al grantmakers, one of our primary roles since our thropic circles: “If you’ve seen one foundation, founding has been to bring the voice of nonprofits and you’ve seen one foundation.” People use that the marginalized communities these groups often phrase to emphasize how different each foundation serve into deliberations about philanthropic priorities is from the next. Anyone familiar with the sector and practices. The criteria clearly and intentionally knows that there is, indeed, great variability among reflect that history and NCRP’s values as an organiza- grantmaking institutions. But many people also use tion. We always have been uncompromising in hold- the phrase to deflect criticism, arguing that the ing the field to a high standard. The voices of nonprof- unique nature of each foundation makes it impossi- its and of vulnerable communities too often are miss- ble to compare one foundation to another or to ing when grantmakers reflect on their practice. With hold grantmakers to any standards more rigorous these criteria, we’re bringing back their voices. than those that are within bounds of the law. But Our vision is that philanthropy contributes in that’s simply not true: comparison is possible and meaningful ways to the creation of a fair, just and dem- valid, provided that it is done appropriately and ocratic society. It does so by serving the public good, with sufficient flexibility. not private interests, and by employing grantmaking Just as profit is the bottom line for the private sec- practices that help nonprofits achieve their missions tor, impact is the most important measure for the civic most effectively. Philanthropy, at its best, also sector. A foundation serves the public good if it has strengthens democracy by responding to the needs of impact on important societal issues. It is almost those with the least wealth, opportunity and power. impossible, however, to examine each of the nation’s To develop the criteria, we used an iterative process more than 70,000 grantmaking institutions and deter- that involved rigorous research and literature reviews, mine the extent to which that foundation is enhanc- original data analysis to understand current practices, ing the public good, creating positive social benefits and numerous rounds of discussions and debate or advancing the public interest. Our criteria offer a among a group of about 50 people over the period of meaningful tool to begin addressing this very chal- approximately 15 months. We intentionally did not lenge. A foundation that meets the criteria is not use a broader process because we didn’t want to pro- guaranteed to have positive impact, but it is more duce a “least-common-denominator” set of criteria. likely to do so than a foundation that doesn’t operate Plenty of those already are available, but they clearly in ways consistent with the criteria. haven’t solved some of our most persistent challenges. Some grantmakers are being risk-averse while We wanted the end result to be a set of criteria that waiting out the financial storm, but in this time of cri- truly challenges grantmakers to strengthen communi- sis, philanthropy should do more, not less. Conscious ties. The people involved included the NCRP board of analysis and inclusive discussions can help us address directors, our research advisory committee, staff, and these challenging times. I don’t pretend for a minute a dozen or so external advisors. that this will be easy for anyone, but important choices almost never are. If we see this crisis as a genuine opportunity to confront difficult issues directly, our KEY CONCEPTS nation’s grantmakers will emerge stronger and better The criteria focus on values, effectiveness, ethics equipped to serve our ever-changing world. and commitment. We focus on values because who What differentiates an exemplary grantmaker from benefits from philanthropy does matter. an underperforming one? What can a foundation do Effectiveness is important because grantmakers and to improve its relevance to nonprofits, vulnerable their nonprofit partners need to maximize impact, communities and the public? These are the chal- regardless of what issues they’re addressing. Our lenges we’ve attempted to address. It’s my hope that concern with protecting the public trust, ensuring the pages that follow will inform much needed dis- compliance with the law and maximizing the social cussions and help ensure that our sector truly is meet- benefit of philanthropy led to criteria focused on ing its tremendous potential. ethics and commitment.

viii The concept that foundation dollars should be ful impact on philanthropic practice. This is partic- viewed as “partially public” dollars is woven through- ularly true in light of the current challenges our sec- out the text. The generous tax subsidies provided to tor is facing. donors and to foundations make the government and To be clear, this is not a rankings system and the public partners with philanthropists in pursuit of shouldn’t be viewed as such. A foundation that the public good. NCRP believes that foundation meets eight of the 10 measurable benchmarks isn’t trustees are stewards of these partially public dollars. necessarily better than a foundation that meets Especially now, donors need to understand that once the funds have Everything we advocate for in this document is intended to been placed in a foundation, it’s not their generate the greatest amount of social good possible with limited money anymore. Another key concept philanthropic funds. Foundation spending is dwarfed by throughout the criteria is the idea of maximiz- government spending, so it is especially important that grantmakers ing social benefit or impact. Everything we be strategic to maximize the community-wide benefits of their work. advocate for in this document is intended to generate the greatest amount of social good possible only five. We recognize that there may be good with limited philanthropic funds. Foundation spend- reasons for a particular grantmaking institution not ing is dwarfed by government spending, so it is espe- to live up to certain benchmarks we put forward. cially important that grantmakers be strategic to max- But the four criteria and the 10 associated bench- imize the community-wide benefits of their work. marks are, in our view, the most critically impor- Another theme that’s woven throughout many of tant issues for foundations to consider if they want the chapters is a call for grantmakers to rethink the to contribute to the common good to the greatest issue of “credit.” What foundation doesn’t want to be extent possible. able to say that it supported important work with We intentionally haven’t created a scoring sys- demonstrable results? That’s only fair. But at the same tem to go along with the criteria, and we haven’t time, it’s equally relevant to reconsider whether cred- assigned relative weight or importance to the it should go to only one grantmaker when many oth- benchmarks. Additionally, there isn’t enough qual- ers supported the same work. NCRP believes that ity data available at this time for us to be able to institutional philanthropy can benefit greatly from rank or score foundations based on the criteria. looking at “credit” through the lens of contribution And even if there were enough data available, rank- rather than attribution. We’re all in this together and ing would be extremely difficult without creating share many of the same goals. perverse incentives to reward the wrong behaviors in some situations. The appendix lists what we call “field leaders,” or those foundations that we’re FLEXIBILITY AND LEADERSHIP aware of and have access to information from that Philanthropy is nuanced and complex, but these appear to meet or exceed the benchmarks. It’s criteria set concrete and measurable benchmarks. important to understand when looking at these lists Some funders may view the criteria as overly pre- that we might have excluded a particular grantmak- scriptive—but we don’t see it that way. The criteria er not because it isn’t practicing exemplary philan- were developed to highlight the most important thropy or even because it doesn’t meet that particu- issues in philanthropy and to challenge grantmakers lar benchmark. It might be an outcome of data lim- to assess their current practices critically and deter- itations—an important reason to view these lists as mine if and how to change the ways they do busi- illustrative rather than exhaustive. Still, I think it’s ness. Flexibility, courage and leadership are cru- important to highlight those grantmakers that we do cially important for these criteria to have meaning- know practice Philanthropy at Its Best, and it’s also

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact ix National Committee for Responsive Philanthropy

a reason we want to engage in dialogue with fun- REGULATION ders that believe they should be listed so we can Regulation, when crafted properly, is hugely benefi- acknowledge them in other ways. cial to our society. It also is clear that deregulation Some grantmakers will find that the current eco- and a lack of oversight can have disastrous conse- nomic crisis makes it challenging for them to live up quences—simply consider the current economic cri- to some of these criteria. But the financial crisis also sis as an example. Former Federal Reserve Chairman makes the practices we recommend all that much Alan Greenspan stated in congressional testimony in more important. We also understand that smaller October 2008 that that he “made a mistake” in trust- foundations, or foundations with particular trust ing that free markets could regulate themselves with- restrictions, will find some of the benchmarks espe- out sufficient government oversight. It’s no different for A criterion that seems challenging is a vital starting point philanthropy. NCRP believes that regulation for truly intentional and robust debate about why this is so; of grantmaking institutions is essential. Over we want grantmakers to wrestle with these issues. the years, NCRP has engaged in efforts to It’s our role as the sector’s watchdog to push for a real influence the regulation of foundations, and we transformation in philanthropy. We don’t, however, intend to be surely will be involved dogmatic or inflexible in pursuit of compliance with the criteria. in such efforts again in the future. Foundations remain some of the cially challenging to meet. And here’s where most loosely-regulated institutions in the country; this courage and leadership come into play. A criterion has both positive benefits and serious negative conse- that seems challenging is a vital starting point for quences. This particular document, however, is not a truly intentional and robust debate about why this is call for regulatory action on these issues. Instead, we so; we want grantmakers to wrestle with these issues. view these criteria as central to informing meaningful It’s our role as the sector’s watchdog to push for a real self-regulation for foundations and other institutional transformation in philanthropy. We don’t, however, grantmakers. If foundations don’t do a better job of intend to be dogmatic or inflexible in pursuit of com- regulating themselves with integrity and rigor, and if pliance with the criteria. more grantmakers don’t demonstrate their relevance Ultimately, it’s up to the leadership of each insti- to nonprofits and marginalized communities by meet- tution to decide how it’s going to operate and ing the benchmarks set forth in this document, the whether or not it makes sense to meet or exceed the likelihood of more government regulation of the sec- benchmarks for each criterion. We’ve made what I tor will increase. believe is a compelling case for each criterion, and we’ve shown that the benchmarks are achievable by giving examples of grantmakers that already meet or HOW TO USE THE CRITERIA exceed them. Foundation trustees, then, as stewards Each chapter provides a compelling case for one of and protectors of the public trust, have the responsi- the criteria, citing the latest research and providing bility to consider what course of action they will original new data in some cases. We put a tremen- take, and it is my hope that trustees and executives at dous amount of time and effort into ensuring that foundations will engage courageously in vigorous these criteria reflect the most current qualitative and discussions and debate about these important issues. quantitative analyses available to us. Various institu- These conversations will help each grantmaker clari- tions and individuals will find value in the criteria and fy why it operates the way it does and will encourage each will use this document in different ways. examination of why certain practices are or are not As stated before, we hope grantmakers will find consistent with a foundation’s mission and with the the criteria helpful in examining their work. There are broader public interests. discussion questions at the end of each chapter so

x that executives and trustees can explore deeply how considering issues related to philanthropy. The grow- each criterion applies to their foundation. For exam- ing number of academic centers focused on philan- ple, a family foundation board might want to discuss thropy also surely will find value in this text. one chapter at each of its next four meetings. And finally, NCRP will, of course, use these crite- Because we identify funders that currently meet or ria for years to come in our work. We’ll highlight exceed the benchmarks we’ve established, grantmak- grantmakers that exceed the benchmarks, and we’ll ers can compare their own practices to those of their criticize, when appropriate, funders that fall short. peers. We also have an interactive online self-test so That’s the role of a watchdog, after all. We’re chal- that foundations can measure their performance lenging grantmakers to strengthen communities and based on our criteria. we believe that these criteria provide the right tools to Journalists will find the criteria helpful when writ- do just that. Our goal when criticizing grantmakers is ing stories about foundations or other grantmakers in to maximize the net benefit of philanthropy to socie- their communities. Often, journalists assigned to ty, which is the bottom line for ensuring that our sec- cover stories about philanthropy have little prior tor remains viable, relevant and sustainable. experience in the sector, so we hope that this will be As more grantmakers live up to these criteria in the a useful tool for them. In cases of suspected abuse, coming years, they will increase their impact on for example, a journalist can consult the ethics chap- important issues, enhance the public good and ter to determine whether or not the suspected abuser strengthen the public trust. This will benefit not only has been following the recommendations or meeting the whole nonprofit sector, but our entire society. NCRP’s benchmarks. Nonprofits will find much value in these criteria as well. We hope that grantees will use the criteria as a tool to empower themselves to raise critical issues in thoughtful ways with program officers and foundation leaders. The document is full of information that grantees can use to make compelling arguments to their funders about why they need support for their Aaron Dorfman advocacy work or a multi-year grant, for example. Executive Director Policymakers, too, will find the benchmarks and National Committee for Responsive Philanthropy the mapping of current practices informative when March 2009

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact xi National Committee for Responsive Philanthropy

RESEARCH ADVISORY COMMITTEE

Christine Ahn KOREA POLICY INSTITUTE Dwight F. Burlingame CENTER ON PHILANTHROPY, INDIANA UNIVERSITY Hodding Carter III THE UNIVERSITY OF NORTH CAROLINA, CHAPEL HILL Michael Cortés INDEPENDENT CONSULTANT Louis T. Delgado INDEPENDENT CONSULTANT Lois Gibbs CENTER FOR HEALTH, ENVIRONMENT AND JUSTICE Cynthia Guyer (CHAIR) SAN FRANCISCO SCHOOLS ALLIANCE Mark Lloyd LEADERSHIP CONFERENCE ON CIVIL RIGHTS john a. powell KIRWAN INSTITUTE FOR THE STUDY OF RACE AND ETHNICITY, THE OHIO STATE UNIVERSITY Jon Pratt MINNESOTA COUNCIL OF NONPROFITS Vijaya Ramachandran CENTER FOR GLOBAL DEVELOPMENT Cinthia H. Schuman Ottinger THE ASPEN INSTITUTE Paul W. Speer VANDERBILT UNIVERSITY William E. Spriggs HOWARD UNIVERSITY Heidi Swarts RUTGERS UNIVERSITY

Organization affiliation for identification purposes only.

xii Criteria for Philanthropy at Its Best

CRITERION I: VALUES CRITERION III: ETHICS A grantmaker practicing Philanthropy at Its Best serves A grantmaker practicing Philanthropy at Its Best the public good by contributing to a strong, participa- serves the public good by demonstrating accountabil- tory democracy that engages all communities. ity and transparency to the public, its grantees and constituents. a) Provides at least 50 percent of its grant dollars to benefit lower-income communities, communi- a) Maintains an engaged board of at least five people ties of color and other marginalized groups, who include among them a diversity of perspec- broadly defined tives—including of the communities it serves—and who serve without compensation b) Provides at least 25 percent of its grant dollars for advocacy, organizing and civic engagement to pro- b) Maintains policies and practices that support ethi- mote equity, opportunity and justice in our society cal behavior

c) Discloses information freely CRITERION II: EFFECTIVENESS A grantmaker practicing Philanthropy at Its Best serves the public good by investing in the health, CRITERION IV: COMMITMENT growth and effectiveness of its nonprofit partners. A grantmaker practicing Philanthropy at Its Best serves the public good by engaging a substantial por- a) Provides at least 50 percent of its grant dollars for tion of its financial assets in pursuit of its mission. general operating support a) Pays out at least 6 percent of its assets annually in b) Provides at least 50 percent of its grant dollars as grants multi-year grants b) Invests at least 25 percent of its assets in ways that c) Ensures that the time to apply for and report on the support its mission grant is commensurate with grant size

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact xiii xiv Chapter I: Values

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 1 National Committee for Responsive Philanthropy

Criterion I: Values — At A Glance

A grantmaker practicing Philanthropy at Its Best serves the public good by contributing to a strong, participatory democracy that engages all communities.

a) Provides at least 50 percent of its grant dollars to benefit lower-income communities, communities of color and other marginalized groups, broadly defined

b) Provides at least 25 percent of its grant dollars for advocacy, organizing and civic engagement to promote equity, opportunity and justice in our society

> Philanthropic support for people and communi- American Dream. Grantmakers that prioritize ties that historically have been marginalized is racial and ethnic minorities see benefits accrue extremely low. Although serving disadvantaged to people of all races. communities is not the only purpose of philanthropy, it should be a much higher priority than > Overcoming social problems for any marginal- it is. In the aggregate, only 33 percent of grant ized group is complicated and multifaceted. dollars can be classified as benefitting marginal- Grantmakers that use systems thinking to guide ized communities, even very broadly defined.1 their work recognize this and are leading the This is cause for concern in spite of the fact that way, helping philanthropy be more relevant in philanthropy and the charitable sector are not a addressing pressing social needs. substitute for public programs; the government has an obligation to assist the country’s under- > Advocacy, community organizing and civic served populations. engagement have played essential roles in the development of our society and our democra- > By intentionally elevating vulnerable popula- cy. They are among the most effective strategies tions in their grantmaking, foundations benefit for implementing a systems approach and for society and strengthen our democracy. achieving a significant, measurable impact on a Prioritizing marginalized communities brings variety of issues. These efforts advance demo- about positive benefits for the public good. cratic renewal and enhance civic engagement. “Targeted universalism” is one of the most effective strategies for doing this. > Leading the field, 108 foundations (13.35 percent of our sample) provided at least 50 percent > Income and wealth inequality impact the entire of their grant dollars for the intended benefit of U.S. economy negatively. Grantmakers that pur- marginalized communities. Also noteworthy, 56 sue social inclusion for the economically disad- foundations (6.9 percent) provided at least 25 vantaged help not only the poor, but broader percent of their grant dollars for social justice. society as well. Race persists as a significant bar- These are the benchmarks for Philanthropy at rier to social inclusion and to achieving the Its Best.

2 Chapter I: Values

Social inclusion is based on the belief that we all fare better when no one is left to fall too far behind and the economy works for everyone. Social inclusion simultaneously incorporates multiple dimensions of well-being. It is achieved when all have the opportunity and resources necessary to participate fully in economic, social and cultural activities which are considered the societal norm. – Heather Boushey et al., Center for Economic and Policy Research & Inclusion 2

any foundations play an extremely important philanthropy, everyone in society benefits and our Mrole in the civil society sector by prioritizing inclusive democracy is strengthened, with positive marginalized communities in their grantmaking and benefits that extend well beyond marginalized com- thus enhancing substantive, participatory democracy. munities. Unfortunately, too few foundations take Contributing to the public good in this way is in keep- advantage of their independence and accumulated ing with what Alexis de Tocqueville identified in the wealth to enhance the common good in this way. 19th century as the feature that distinguishes the Instead, they often practice patronage giving by pro- United States from Europe. Citing the power of the viding grants to large educational or cultural institu- “voluntary association” he observed during his travels tions that primarily serve the elite, eschewing the throughout the country, he contended that the free- needs of the most vulnerable in our society. dom of U.S. citizens coming together united by a Philanthropic support for people and communities common purpose would connect them to civil and that historically have been marginalized is extremely political society in which they shared common dem- low. Although serving disadvantaged communities is ocratic values.3 Tocqueville argued that such connec- not the only purpose of philanthropy, it should be a tions made U.S. democracy truly participatory and much higher priority than it is. NCRP acknowledges inclusive, identifying the relationships between social that grants to promote the eradication of disease, to equality and democracy and between that equality advance higher learning, to promote excellence in the and voluntary association.4 arts, or to protect the environment often have substan- By focusing intentionally on the most marginal in tial benefit for all people, including those who histor- their grantmaking, foundations can promote greater ically are or have been marginalized. Yet, there are equality and enhance the ability of underserved pop- many reasons for foundations and institutional grant- ulations to contribute meaningfully to the democratic makers to prioritize giving for struggling communities process and improve social capital nationwide. in their grantmaking. Many of the great American Importantly, by elevating vulnerable populations in philanthropists have used their surplus wealth to ben-

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 3 National Committee for Responsive Philanthropy

efit underserved populations and groups that are mar- vide services to underserved populations. But philan- ginalized; indeed, focusing on underrepresented pop- thropy has a special responsibility to nurture and ulations is an important part of the American philan- strengthen democracy, and the nonprofit sector is thropic tradition. The belief that philanthropy ought to positioned uniquely to promote the health of our plu- give precedence to the economically disadvantaged ralistic and diverse society. By enhancing the voice of persists today among some modern-day U.S. grant- the disenfranchised in decision making, removing making institutions. Disappointingly, the vast majori- barriers to civic participation and addressing the ty of foundations do not prioritize underserved com- imbalances of power created by our free enterprise munities in this way. system, institutional grantmaking can make important This chapter provides background and rationale for contributions to advancing equity for all Americans. why every foundation has an obligation to direct some While recognizing the disempowering potential of of its funding to benefit those with the least wealth, the phrase “marginalized communities,”5 the latter opportunity and power. A brief overview of the evolu- part of this chapter provides the rationale for why tion of institutionalized grantmaking in the United foundations should prioritize economic and racial States grounds this analysis, and human development justice as two important mechanisms for maximizing and social inclusion offer persuasive reasons for phi- the public benefit from philanthropy. In the words of lanthropy to rethink economic well-being. Next, a Dr. Martin Luther King Jr., “Philanthropy is commend- review of the macroeconomic effects of income and able, but it must not cause the philanthropist to over- wealth inequality makes the case for philanthropy’s look the circumstances of economic injustice that special role in focusing on the economically disadvan- make the philanthropy necessary.”6 taged. Race persists as a significant barrier to equality of achievement in the United States, compelling philanthropy to lead by example by prioritizing racial and PRECEDENTS AND RATIONALES FOR ethnic minorities in grantmaking. Finally, advocacy, PHILANTHROPY THAT BENEFITS MARGINAL- community organizing and civic engagement are pre- IZED COMMUNITIES sented as important ways to see an inclusive, participatory democracy in action. They are demonstrated as Historical, religious, philosophical and economic among the most effective strategies to address the spe- precedents have motivated many American grantmak- cial needs of vulnerable communities. Importantly, ers to prioritize vulnerable populations in institution- adopting this criterion and elevating marginalized al philanthropy. populations in grantmaking results in broad community-wide benefits. This increases the impact of philan- The roots of American philanthropy: thropic giving, maximizing the return on investment from Carnegie to Gates and generating sustainable benefits enjoyed by all Andrew Carnegie, the Scottish immigrant and steel members of our society. magnate, often is cited as one of the first American philanthropists. In 1901, Carnegie estab- I believe that with great wealth comes lished major philanthropic institutions and great responsibility, a responsibility to give back to society, was engaged in charita- a responsibility to see that those resources are put ble giving until his death in 1911. In to work in the best possible way to help those most in need. his seminal 1889 text, The Gospel of Wealth, Carnegie addressed capi- – Bill Gates, Founder, Bill and Melinda Gates Foundation7 talism and its impact on the distribution of NCRP strongly believes that philanthropy and the wealth and resources. His awareness of the charitable sector are not a substitute for public pro- inequities of wealth created by this system guided his grams; the government has many obligations to pro- philanthropic giving later on. Carnegie believed that

4 capitalism promotes the “best interests of the race … thropy and acts of charitable giving to help the needy but … inevitably gives wealth to the few.” Carnegie and the poor are not the exclusive realm of western saw the millionaire as the “trustee for the poor, religious traditions. Islam, Buddhism, Hinduism, intrusted [sic] for a season with a great part of the Sikhism and the Greco-Roman “pagan” religions increased wealth of the community.”8 Despite the each prioritize the needs of those who are most mar- paternalistic tone of much of his writing in Gospel, ginalized and provide guidance on how individual Carnegie recognized that the wealthy owed their charity and institutional philanthropy can work to largesse, in no small part, to the poor people who improve the lot of those who are most in need. The worked for them and helped create their wealth. ethics and values that ground philanthropy and char- Thus, he prioritized improving the community and ity across the world draw extensively from the native gave precedence in his charitable work to those who religious traditions from which each evolved. A com- suffered from deep wealth inequality. mon theme across faiths is the appropriate redistrib- The Gates Foundation’s focus on improving global ution of excess wealth by redistributing resources to health by tackling HIV/AIDS and malaria provides those who are marginalized or lack opportunity. It is one example of modern day philanthropy that reflects on the basis of these moral principles that exemplary Carnegie’s values. Gates, like Carnegie, sees a moral philanthropy defensibly can be argued, by necessity obligation to prioritize the needs of disadvantaged and definition, to focus on those with the least communities because the free enterprise system has wealth, opportunity and power. worked tremendously to his benefit. Gates wants his foundation, which now accounts for one of every ten Philosophical arguments for prioritizing marginalized foundation dollars provided to nonprofits, to focus on communities the economically disadvantaged.9 Harvard political philosopher John Rawls, among the In fact, Gates reiterated his rationale for prioritiz- most prominent 20th century American thinkers, is ing marginalized groups in his first annual letter perhaps best known for his contribution regarding about the Gates Foundation posted on its website in how a just and fair welfare state ought to be January 2009. Gates said, “Foundations provide designed. In A Theory of Justice, Rawls articulated something unique when they work on behalf of the his now famous and often cited principles of distrib- poor, who have no market power, or when they work utive justice. The first principle calls for all people to in areas like health or education, where the market have “equal rights to the most extensive system of doesn’t naturally work toward the right goals and basic civil liberties.” The second principle, also where the innovation requires long-term investments. called the “distributive justice principle,” states that These investments are high-risk and high-reward. But the socio-economic inequalities inherent in the free the reward isn’t measured by financial gain, it’s market system are morally justifiable if they “work to measured by the number of lives saved or people lift- the benefit of the least advantaged”12 in our society. ed out of poverty.”10 Rawls sought to ensure justice and fairness, with an Hundreds of other large and small grantmaking emphasis on redistributive justice in the welfare institutions of all types, independent, family, commu- state. Rawls asserted that all wealth in society is nity and corporate, also elevate the economically dis- made by the cooperation of all the members of soci- advantaged or other marginalized communities in ety in the context of the arrangements of basic insti- their work. These foundations, while too few in num- tutions. He stated that there are two types of soci- ber, are too numerous to name here and are an impor- eties: a capitalist welfare society and a democratic tant part of the American philanthropic tradition. property owning society. The first is concerned with order and will support welfare for the purpose of The religious grounding of Western philanthropy maintaining order and serving capital. The latter will Institutional philanthropy in the West is premised on arrange institutions and norms to support democracy ethical values articulated in the Judeo-Christian tradi- and welfare to secure membership. Capital will be tions.11 The faith-based motivations of early and arranged to support democracy and people.13 In modern day philanthropists are part of the rationale 1999, President Bill Clinton acknowledged Rawls’ for why foundations should prioritize those with the important contributions by awarding him the least wealth and opportunity. Importantly, philan- National Medal of the Arts and the National

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 5 National Committee for Responsive Philanthropy

Humanities Medal. Clinton described Rawls as “per- The concept of human development is attributable haps the greatest political philosopher of the 20th to Mahbub ul Haq, former finance minister of century. In 1971, when Hillary and I were in law Pakistan and a pioneering economist of the 20th cen- school, we were among the millions moved by a tury. He contended that human progress indicators in remarkable book he wrote, A Theory of Justice, that developing countries were deficient: they did not placed our rights to liberty and justice upon a strong present an accurate representation of the real purpose and brilliant new foundation of reason.”14 of development, i.e., to improve peoples’ lives. Unlike Michael Walzer, who calls for “simple Working with Sen and other economists, in 1990, Dr. equality,”15 Rawls believed that inequality must be Haq oversaw production of the first United Nations arranged to serve larger societal goals. In other words, (U.N.) Human Development Report; more than 500 recognizing the implicit power imbalances inherent regional and national reports produced since then in the free market system, he argued that inequality have sparked important public debates and political could be justified only if the needs of the most disad- engagement.18 Sen defines human development as vantaged are prioritized in the welfare state. Rawls’s “concerned with what I take to be the basic develop- principles of distributive justice easily are adaptable ment idea: namely, advancing the richness of human to philanthropy, with the caveat that charitable organ- life, rather than the richness of the economy in which izations are supplementing or complementing, not human beings live, which is only a part of it.” His substituting for, public services. As NCRP’s previous focus on human development and individuals’ ability work on using Rawls’s principles to increase philan- to exercise their freedoms and capabilities bolsters thropy’s impact stated, “There is a simple elegance in economic arguments in support of increasing philan- resting social justice philanthropy on these two thropic resources to benefit the poor.19 Rawlsian principles. It requires philanthropy … to Sen posits that economic theory lends credence to direct its attention to those populations that are most addressing the needs of those most disadvantaged by disadvantaged.”16 Foundations can play a critical role the inequities generated by the free enterprise sys- in democracy by engaging in grantmaking to support tem. Linking human development in the context of membership in society. Philanthropy can increase its economic mobility and an understanding of the con- impact substantially by directing a significant portion nectivity between the two provides institutional of its resources to those with the least wealth, oppor- grantmaking with a salient rationale to work toward tunity and power, to mitigate differences created by an inclusive poverty paradigm that looks beyond the our normalized free enterprise socio-economic sys- base measures of economic inequality. In the United tem that is predicated on inequality. States, this leads to an analysis of structural barriers Great levels of disparity undermine human dignity that work to exclude vulnerable populations from and our democracy, disallowing the economically mar- equally enjoying the socio-political freedoms and ginalized from fully engaging in participatory democra- benefits of democratic participation. The United cy or realizing their human capabilities and freedoms. States, however, never had applied a human development approach to well-being in assessing the Social inclusion and human development country’s health until 2008. As Nobel-laureate economist Amartya Sen highlights, Rigorous research informed by lessons learned poverty is more than the lack of income or wealth. from international development work led to the Poverty is the deprivation of basic human freedoms American Human Development Report, The Measure and capabilities. Emphasizing the historical concern of America. Researchers developed a first-ever of the social sciences with empowering the lives and American Human Development Index (HDI) that capabilities of ordinary citizens, Sen cites the work of combines human-focused indicators into a single free market economists and the Greek philosophers to measure of progress and well-being.20 An important describe wealth as a means to accomplish something feature of the HDI is that it addresses explicitly else. “We have to judge the success of a society, human capabilities or the potential for what individu- including its economy, not just in terms of national als are or could become. The U.S. HDI was built by wealth or the ubiquitous GNP [Gross National analyzing society, which determines the extent to Product], but in terms of the freedoms and capabilities which capabilities can be exercised. Next, three that people enjoy to live as they would value living.”17 dimensions of capabilities that can be measured—

6 longevity, access to knowledge and a decent standard impact of its giving by looking beyond economic of living—were added. Researchers then used geogra- indicators to assess the health of people and society phy, gender and race/ethnicity to assess variations on multiple dimensions of well-being. Human devel- among groups resulting in three indices (health, edu- opment, the capabilities approach and social inclu- cation and income), which then culminate in a com- sion provide three tangible ways to reshape how our posite American HDI. While the dimensions are the society conceives of poverty, with better outcomes same as those used in the U.N.’s standard HDI, the seen by all communities nationwide. American HDI uses different indicators.21 Linking human development with social inclusion provides a unique opportunity to advance American well-being INCOME AND WEALTH INEQUALITY on multiple dimensions: economic, social, political, Research demonstrates consistently that the gap religious, environmental and more. between the rich and the poor is the most significant Inequality is associated with negative outcomes for predictor of the health of a country.26 An analysis of all society and base measures such as the income gap data from the Census Bureau and the Federal Reserve fail to capture these ripple effects. Contextualizing Bank shows that between 1975 and 2005, U.S. poverty as both an outcome and root cause of social households in the bottom 80 percent of the income exclusion is the fundamental premise of moving to social inclusion. Although we Americans strive to provide equality of economic Heather Boushey et al. opportunity, we do not guarantee equality of economic explain social inclusion as “based on the belief outcomes, nor should we. That said, we also believe that no one that we all fare better when no one is left to should be allowed to slip too far down the economic ladder. fall too far behind and the economy works for – Ben Bernanke, Chairman, Federal Reserve25 everyone.”22 Similar to the HDI, indicators in a social inclusion paradigm would distribution saw their proportion of national income “assess the extent to which low-paid workers fall decline. Similarly, households in the bottom 40 per- behind the rest of the workforce, not only in terms of cent of the income bracket witnessed a drop in wages and income, but in a variety of dimensions, income when adjusted for inflation, while the top 20 including health, education, housing, skills, advance- percent of households in the U.S. saw an increase in ment, and opportunity.”23 For example, in the United their income share, with the lion’s share of the Kingdom and Europe, poverty is viewed in this multi- increases going to the top 5 percent of households faceted way. Poverty is not measured simply as the measured by income. Households in the top one-fifth lack of adequate income; rather, it reflects measures of the income bracket earned about half of the coun- of economic mobility, life opportunities—access to try’s income and controlled more than 80 percent of housing, financial and health services—and inclu- national wealth.27 sion. Just as poverty has the potential to divide us, Income inequality in the United States remains a social inclusion offers the opportunity to unite us, significant barrier to improving one’s quality of life and with broad society-wide understanding of the reasons data suggest that income inequality has been exacer- for inequality and how improving conditions for the bated in recent years. As noted in The Measure of most marginal benefits us all.24 America, while real mean income is more than twice Human development and social inclusion provide what it was in 1947, the income distribution shows compelling reasons for institutional grantmakers to extreme concentration among the top quintile of the contribute to the public good by supporting policies population. For example, the richest 20 percent of that seek to create a more level playing field. By pri- U.S. households earned 50.5 percent of total income oritizing the marginalized communities in grantmak- in 2006, compared to 3.4 percent earned by the bot- ing, philanthropy has the opportunity to maximize the tom 20 percent.29 Income inequality in the United

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 7 National Committee for Responsive Philanthropy

States is similar to the levels observed in developing TABLE 1.1 INCOME INEQUALITY OVER TIME: countries, as seen in Table 1.2.30 According to the SHARE OF HOUSEHOLD INCOME28 Census Bureau’s 2007 American Community Survey HIGHEST MIDDLE LOWEST (ACS), the Gini index for the United States stood at YEAR QUINTILE QUINTILE QUINTILE 0.464, ranging from a high value of 0.537 in the 1975 43.6 17.0 4.3 District of Columbia to a low of 0.410 in Utah; most 1985 45.6 16.2 3.9 developed countries have Gini indices ranging from 0.23 to well-below that of the United States.31 The ACS 1995 48.7 15.2 3.7 notes that based on 2006 income data, fully 13.3 per- 2005 50.4 14.6 3.4 cent of the U.S. population was living in poverty. Moreover, as several economists and policymakers have noted, the current federal poverty measure TABLE 1.2 INCOME INEQUALITY: depresses the actual level of poverty because it fails to GINI INDEX OVER TIME33 account, for example, for regional variation in the cost of living. According to the Department of Health and YEAR GINI INDEX Human Services, in 2006, the federal poverty level 1975 0.397 (FPL) was $9,800 for an individual and $20,000 for 32 1985 0.419 family of four. Proposed alternate poverty measures 1995 0.450 account for basic costs of living such as shelter and food. In contrast, the FPL was established in 1969 and 2005 0.469 is based primarily on a household’s pre-tax income that is spent on food consumption. Rethinking how poverty is measured and defined in the context of TABLE 1.3 CONCENTRATED POVERTY RATES human development and capabilities provides a more IN URBAN AREAS35 comprehensive measure of economic well-being. As noted earlier, in the United Kingdom, poverty meas- CITY PERCENT ures account for access to quality health and educa- Fresno, CA 43.5 tion services. Poverty thus is both a root cause and an outcome of social exclusion. New Orleans, LA 37.7 Louisville, KY 36.7 Urban and rural poverty Miami, FL 36.4 Concentrated poverty refers to areas in which the Atlanta, GA 35.8 poverty rate exceeds 40 percent for residents of these Long Beach, CA 30.7 communities. In 2005, 10.3 percent of the United Cleveland, OH 29.8 States population in the 50 largest cities lived in these Philadelphia, PA 27.9 impoverished, often racially segregated, neighborhoods.34 Disaggregated data show disproportionately Milwaukee, WI 27.0 high levels of concentrated poverty in urban areas. New York, NY 25.9 Rural areas also are disproportionately poor. Lack of infrastructure in rural communities often is attributed to disinvestment by public and private entities in these marginal areas. However, private and govern- TABLE 1.4 POVERTY RATES IN RURAL AREAS36 ment investment in rural areas does not always serve the public interest or advance the economic well- AREA PERCENT being of these communities. As the ACS notes, Utah’s McKinley County, NM 45.6 Gini is not statistically different than the indices for Holmes County, MS 41.1 Alaska, New Hampshire, Vermont or Wyoming. McDowell County, WV 37.7 Table 1.4 demonstrates recent trends in rural poverty. Martin County, KY 37.0 These data demonstrate how rural and inner city Blackfeet Reservation, MT 33.8 populations remain economically marginalized and

8 the lack of voice afforded these communities in deci- deep wealth inequality leads to macroeconomic con- sion making that directly impacts their lives and the ditions that take a serious toll on all Americans of lim- state of their communities. States such as California, ited financial means. The 2004 Survey of Consumer for example, demonstrate how aggregated income Finances shows that the wealthiest 5 percent of the data often obscure the variation within states that, on population had a median net worth of $924,100 com- a cursory look, appear to be doing well. Median pared to $7,500 for the bottom 20 percent of the pop- income in California was close to $56,000, placing it ulation.41 Graph 1.1 below demonstrates wealth among the ten richest states; yet, the concentrated inequality over time measured in 2004 dollars; these poverty statistics from Fresno and Long Beach show data show that wealth inequality has increased. The the persistence of high intra-state income inequality. top 5 percent in particular show a consistent upward It is particularly important for foundations that trend while wealth for the lowest quintile remains want to prioritize the economically disadvantaged in stagnant and extremely low. grantmaking to analyze disaggregated data to maxi- Income and wealth inequality negatively affect the mize the impact of their grantmaking. A foundation entire U.S. economy. Highly concentrated wealth is should thus adopt nuanced lenses to determine which correlated with concentrated power; this power communities are historically and persistently denied directly influences the macroeconomic environment, economic gains seen by neighboring communities health outcomes, civic engagement and democratic within and across states. Importantly, income data participation. As Chuck Collins notes, high levels of provide only a partial representation of poverty in the inequality undermine the economic health and well- United States; when analyses of wealth are added to being of the entire country because as wages fail to income, the gap between the rich and the poor keep up with the rising costs of living, the average increases significantly. household’s purchasing power is diminished, despite having to work more and often accumulating addi- Wealth versus income as a gauge of tional debt simply to stay afloat. Because these trends economic well-being are not sustainable in the long term, they destabilize Since the 1990s, many analyses of economic well- the entire economy.42 Moreover, wealth inequality being have shifted their focus from income inequality has a disproportionate negative impact on several to wealth inequality. Numerous advantages are corre- special population groups. For example, female- lated with wealth acquisition, including the potential headed households with children had a mean net to break the intergenerational transmission of poverty 37 by investing in human capital. These advantages GRAPH 1.1 WEALTH INEQUALITY: MEDIAN NET cannot be capitalized on by gains in income alone. WORTH 1995–2004 The potential to accumulate private wealth reflects institutional arrangements; thus, such analyses speak $1,000,000 directly to the role of public policies in fostering and perpetuating how these arrangements work. Moreover, the correlation between income and wealth holdings is surprisingly weak.38 As Supreme Court Justice Louis Wealthiest 5% $600,000 Brandeis said, “We can have a democratic society or Highest Quintile we can have great concentration of wealth in the Middle Quintile 39 hands of a few. We cannot have both.” Lowest Quintile Wealth provides a more comprehensive understanding of economic disparities for four reasons: liq- $200,000 uid assets that can be converted into money are a source of consumption funds independent of current income; homeownership provides more fiscal options to the owner; times of economic crisis can be man- 1995 1998 2001 2004 aged more easily by households with access to liquid SOURCE: Brian K. Bucks et al., “Recent Changes in U.S. Family assets; and there is a relationship between the distri- Finances: Evidence from the 2001 and 2004 Survey of Consumer 40 bution of power and wealth distribution. Moreover, Finances,” Federal Reserve Bulletin (2006): A8

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 9 National Committee for Responsive Philanthropy

worth of $61,200 compared to married couple- all communities. Third, and perhaps most importantly headed households, which had $370,300, placing for philanthropy to elevate marginalized groups in female single-parents at a severe disadvantage in grantmaking, social inclusion posits a discursive and being able to deal with financial crises or unfore- paradigmatic shift in how poverty is viewed, one that seen economic hardship.43 Quantitative analysis fur- is consistent with deep-seated moral values that aim ther demonstrates the alarming levels of inequality: to empower and improve the life opportunities for all the richest 1 percent of the U.S. population holds individuals and communities. As Boushey et al. note, close to one-third of all private wealth.44 In contrast, “From a values perspective, a poverty framework is the bottom 90 percent of the population accounts counterproductive because Americans attribute for nearly 75 percent of all debts and liabilities.45 poverty to individual characteristics—such as a lack NCRP’s analysis of Foundation Center data on spe- of a work ethic. The concept of social inclusion has cial population groups indicates that in the aggre- the advantage of situating individuals in a social and gate, just above 20 percent of grant dollars is given relational context. Moreover, the experience of exclu- for the intended benefit of the economically disad- sion of some sort, unlike the experience of poverty or vantaged.46 This figure is disappointingly low in light discrimination, is nearly universal.”49 of the preceding analysis.

A socially inclusive poverty paradigm RACIAL INEQUALITY AND STRUCTURAL A reconception of poverty offers a powerful frame- RACIALIZATION work to change the economic policy paradigm. The Race persists as a significant barrier to social inclu- lenses of human development and social inclusion sion and to realizing the American Dream. As with shift the focus from individual poverty to a model of income and wealth inequality, philanthropic interventions to address explicitly the unequal To be clear, our grantmaking has never been, and will never become, playing field because of a welfare program. And because we will not turn away from the reality that race provides philan- structural and institutional racism continue to undermine our effectiveness, thropy with an opportu- it does not mean that we intend to become a civil rights advocacy organization. nity to improve the […] To move the Kellogg Foundation forward, to move from “better to best” as overall health of American democracy we “Connect our Legacy to the Future,” we are committed to dealing head-on and to directly confront with the truth that racial inequality is a root problem that must be this country’s history of eliminated if we value the potential in all of our children and their families. racial discrimination. The analysis presents a transformative approach – Joseph Stewart, Chair, Board of Trustees, W.K. Kellogg Foundation50 to identifying and discussing race. The bene- social inclusion. Because Americans tend to view fit of philanthropy that addresses race-based exclu- poverty as failure at the individual level, economic sion can generate positive outcomes that extend far mobility must be reframed in a community-based beyond the beneficiaries of grants that work toward model, one in which poverty is seen as the outcome racial justice. of structures and policy.47 Connecting the theoretical model of social inclusion approach to poverty accom- Income, wealth inequality and race plishes several objectives. First, it recognizes implicit- Income inequality is a substantial barrier to econom- ly the historical impact of structural barriers to wealth ic justice; when the data are disaggregated by race, it accumulation today, addressing the complexities of is clear that racialized poverty persists as a problem quantifying its impact.48 Second, by moving away today. Census data suggest that racial income from traditional conceptions of poverty as failures at inequality has remained at consistent levels over the individual level, it provides a more inclusive time, with white households clearly earning more means to reposition poverty as an issue of concern for than black or Hispanic households.

10 populations, refugees and women and girls. Just as TABLE 1.5: INCOME INEQUALITY BY RACE: income and wealth inequality have negative spillover MEDIAN HOUSEHOLD INCOME51 effects on the broader society, racial inequality and YEAR WHITE BLACK HISPANIC injustice negatively impacts all of us. Shifting how we view race creates positive opportunities to advance 2005 $53,937 $32,774 $38,200 our diverse and pluralistic society by addressing struc- 1995 $50,225 $30,251 $30,882 tural barriers to social inclusion. 1985 $46,801 $27,232 $32,095 1975 $43,566 $25,958 $31,063 Structural barriers to race, gender and class equality Despite progress, exclusion caused by discrimination persists as a barrier toward realizing social inclusion. Data suggest that wealth remains highly concen- An analysis of metropolitan housing markets conduct- trated in the hands of a disproportionately small per- ed by the U.S. Department of Housing and Urban centage of the population. Recent statistics on wealth Development (HUD) using 2000 data from the Urban and race drawn from the 2004 Survey of Consumer Institute found persistent racial discrimination in both Finances by the Federal Reserve paint a bleak picture the rental and homeownership markets. The baseline of the racial distribution of U.S. wealth. data are drawn from 1977 and 1989 when HUD and The ratio of wealth holdings by race has remained Urban conducted two similar matched-pairs testing relatively constant, despite absolute gains in wealth studies to determine whether racial bias is evident in for all. More than 24 percent of white households the housing market. In both studies, two individuals, received an inheritance with the average transfer one white and one non-white, with identical socio- amount equaling $115,000. In contrast, only 11 per- economic backgrounds, credit histories and other cent of black households reported receiving inheri- financial characteristics approach real estate or rental tance monies and the mean value of the inheritance agencies to explore their options. Differential treat- was $32,000.52 This analysis highlights the disadvan- ment can be attributed to racial discrimination taged position of African Americans in the intergener- because other factors that would influence outcomes, ational transmission of wealth. It also identifies the such as income and age, are controlled for. Overall, biggest inheritance deficit among African Americans the findings of the 2000 analysis indicated persistent in the bottom quintile of wealth distribution in the housing discrimination against Hispanics and African United States.53 Analysis of old-age poverty and race Americans compared to whites, despite progress in based on data from the 2004 Health and Retirement some areas.55 Study shows that while less than 10 percent of adults over the age of 65 live in poverty, the rates are double GRAPH 1.2 WEALTH INEQUALITY BY RACE: for elderly Hispanics and triple for older African MEDIAN NET WORTH 1995–2004 Americans. Adding wealth measures to this analysis reveals greater resource deficiency for elder commu- $150,000 nities of color. African Americans were 6.4 times more likely than their white counterparts to be asset- poor while older Hispanics were 8.1 times more like- $90,000 White ly to be poor.54 The relevant question to ask then is: Non-White why do racialized wealth disparities persist? Complementing the rationale for philanthropy that benefits those with the least opportunity leads natu- $60,000 rally to a frank discussion of race in the United States. NCRP sees inclusive racial equity efforts as extremely important: emphasizing racial justice is the entry 1995 1998 2001 2004 point for foundations to address broader issues of SOURCE: Brian K. Bucks, Arthur B. Kennickell, and Kevin B. Moore, equity for special population groups including but not “Recent Changes in U.S. Family Finances: Evidence from the 2001 limited to the elderly, the disabled, immigrants, crime and 2004 Survey of Consumer Finances,” Federal Reserve Bulletin or abuse victims, offenders and ex-offenders, LGBTQ (2006) A8

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 11 National Committee for Responsive Philanthropy

The dominant diversity framework focuses on indi- States has made significant progress in addressing vidual level racism; it presumes an individual actor, a race and racial inequality as exemplified by the fact racist, and an individual act, racism. While racism that we are a more racially and ethnically diverse undeniably persists in the United States, the diversity society than we ever have been. Indeed, the Census frame often obscures deeper and more entrenched Bureau projects non-white populations will become structures or barriers to achieving racial justice. For the racial majority in the coming decades. Moreover, philanthropy to benefit most effectively those who are women and members of traditionally marginalized most disadvantaged requires a shift toward a more racial groups have made notable advances in various racially inclusive paradigm. This paradigm explicitly professions, with the most prominent recent example identifies the dominant power of race in determining being the election of the United States’ first African life chances and outcomes. Once we identify the American president, Barack Obama. But the pre- numerous ways in which race works to exclude sumption of race neutrality allows the perpetuation of groups, we can identify positive spaces created to implicitly racialized systems and structures that have honest dialogue about race. Social inclusion, impact groups differently based on race. systems thinking and a transformational approach to The decontextualization of race and power leads discussions of race provide important tools to to what Dr. john a. powell terms a distributive or advance philanthropy’s impact. transactional model. As in economics, people are pre- In philanthropy, and American society as a whole, sumed to be rational actors, making logical choices diversity is frequently a euphemism for race and gen- that best suit their individual preferences subject to der differences. Moreover, class seemingly is a ver- their budget constraints. However, as in economics, boten term that cannot even enter the discussion. this approach has several limitations. It assumes equal Thus, foundations, and our public discourse, often access to knowledge, shared or mutual understanding use proxy terms such as “at-risk youth” or provide of power and privilege, and a neutral set of systems grants to tackle poverty that really seek to benefit and institutions. In the transactional model, the communities of color. The problem with this use of assumption is that the institutions themselves are “diversity” is that it often is decontextualized. appropriately established; disparate outcomes are the Because diversity discourse tends to focus on individ- result of how an individual fares while negotiating ual-level racism, it adheres to or reifies existing norms those systems and institutions. In short, success or of institutions and power relations. Institutional grant- failure is ascribed to an individual’s ability to negoti- making can contribute to strengthening democracy by ate a presumed race-neutral system that provides rethinking race in this way. equal opportunities to improve one’s life. Many would contend that since the eradication of Jim Crow laws and the passage of the Civil Rights Act, Structural racism and structural racialization all Americans have equal access to the same life Institutional racism identifies the norms in institutions opportunities. It is incontrovertible that the United that lead to racialized outcomes. As Andrew Grant-

THE PERSISTENCE OF RACE AS A BARRIER TO SOCIAL INCLUSION IN THE UNITED STATES

> Native American women experience infant mortal- > Children of color living in just 10 of New York’s ity rates 20 percent higher than those in other neighborhoods have 90 percent of all lead poi- races in the U.S.56 soning in all of New York.59 > African American infants in the U.S. are two and > Minority children are clustered in major urban a half times as likely as white infants to die before public school systems that are more educationally the age of one.57 segregated today than two decades ago: Detroit, > It will take 1,664 years or 55 generations for with 96 percent black and Latino; Baltimore with African American homeownership to equate to 89 percent black and Latino; Washington, D.C., white home ownership in America.58 with 94 percent black and Latino.60

12 Thomas and john a. powell note, “The institutional TABLE 1.6 PROJECTED DEMOGRAPHIC CHANGES racism framework reflects a broader recognition of IN THE UNITED STATES61 the forms through which racialized power is 62 deployed, dispersed, and entrenched.” A fundamen- YEAR WHITE BLACK HISPANIC ASIAN OTHER tal distinction between institutional and structural 2000 69.4 12.7 12.6 3.8 2.5 racism is identifying the inter-institutional power 2010 65.1 13.1 15.5 4.6 3 dynamics and identifying the fundamental root causes of why normative hierarchies exist. The focus is on 2020 61.3 13.5 17.8 5.4 3.5 the relationships among the various institutions and 2030 57.5 13.9 20.1 6.2 4.1 practices. These relationships can produce results not 2040 53.7 14.3 22.3 7.1 4.7 captured by analyzing a single institution. These 2050 50.1 14.6 24.4 8 5.3 dynamics also can help shape the practices in a single institution. When engaging institutions or structures, practices can be either transactional or transfor- persistence of barriers to race and gender equality mative. The problem with an institution is that unlike and, thus, enhance support for overtly race- and gen- an individual, it lacks a personality; does one bring der-conscious work. Without this intentional identifi- people in to transform an institution or to adhere to its cation of race, sexual orientation, immigrant status, established normative and cultural values? For exam- class or any of the other categories included in ple, simply increasing the number of female lawyers NCRP’s definition of marginalized groups, founda- or attorneys of color does not transform the norms or tions risk perpetuating a system in which advantaged culture at the institution of a law firm. The institution individuals, through no mal-intent, are unable to see is assumed to be neutral but this never is the case. the need to explicitly identify barriers to full demo- Structures reflect and promote norms and values that cratic participation. Discussions about “the un-dis- benefit some and burden others. This is the power of cussable,” such as class, must be framed by local con- structural racialization: it identifies substantive power text and positioned as beneficial for society as a relations that are embedded in the institution and dis- whole. This will help move the United States to a allows racial, gender and other forms of marginaliza- more socially inclusive space where demographics tion to continue by addressing the deeper values it do not dictate life opportunities. conveys.63 Racial justice and equity work provide some con- The structural racism framework easily is extended crete examples to understand better this new and applied to other marginalized communities. The approach to improve philanthropy. The role of histor- Center for Social Inclusion underscores the impor- ical precedents and cross-cutting policies65 demon- tance of adopting a structural racism lens in address- strates the limitations of working to address problems ing social problems: higher rates of poverty and worse in isolation. For example, many African Americans health and education outcomes for communities of initially were denied access to the New Deal era pro- color “are the symptoms of our collective illness – grams ranging from government subsidized mort- structural racism. Whether its [sic] education reform, gages provided via the Homeowners Loan the environment, the workplace, urban planning and Corporation and the Federal Housing Administration development, affordable housing or health care, we to Social Security benefits. Another example of the must make the role of race visible and understand the limitations of not adopting an approach that sees the structures our institutions construct so that we may interconnectivity of issues comes directly from the rebuild them to create opportunities for us all.”64 actions of the Supreme Court. With the Brown deci- Structural racism addresses the cumulative impact of sion, the court mandated integrating previously all- multiple institutions and structures working together white schools, ostensibly opening up educational to reify racialized power. opportunities for children of color. However, because Positive externalities generated by programs that the court took a singular approach to its analysis, it target race and gender bias explicitly in systems or was unable to see the connections of school policy structures are shared by the broader public as well. with housing and transportation policies, and with the Philanthropy should adopt a long-term vision of rais- disinvestment of private resources in impoverished ing awareness among the American public about the neighborhoods.

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 13 National Committee for Responsive Philanthropy

Structural racialization and choice access to good public schools, then any failure to The distinction between structural racialization and achieve or realize progress is viewed as an individual structural racism is subtle but important. The term failure. Choice is constrained by our social relations “racialization” describes a more comprehensive and institutions regardless of socio-economic status or process than racism. As noted, a limitation of the word class. For example, although a wealthy person can racism is that it is strongly associated with conscious afford health care, there are a limited number of doc- individual acts. This is not merely a case of semantics: tors and hospitals to select from. For a poor person, the if foundations and the people working in them uncon- initial constraint is economic, but constraints extend sciously associate the term “racism” with discriminato- beyond the economic realm to social phenomena that ry behavior, it is likely that they will miss the role of create life opportunities for people. When they do so inter-institutional relationships that work to keep cer- in a racialized way that works better for some and not tain groups marginalized. Structural racialization posits for others in a cumulative fashion, it is a manifestation that racial hierarchy is perpetuated by institutions, the of structural racialization.68 values and norms that are embedded in them, their The fact that institutions are in relationships with relationship to each other and their dynamic role. each other and are themselves constantly changing An important element of working in this framework and adapting leads to the applicability of a systems is recognizing that choice always is structural, rela- approach that addresses racial inequality in an inclu- tional, socially constrained and influenced. Racial sive and transformative way. We all live in structures meaning itself is socially produced and constrained. In but in different locations within these structures. A light of racial progress, many would argue that the society where structures are racialized affects all of roles of individual choice and personal responsibility us. It is not just people of color who feel the effects of account for why communities of color remain margin- housing, school and credit segregation. These alized. If communities of color are not fully integrated arrangements define all of us and often depress the in the suburbs, if non-white children have theoretical outcomes for the entire society.

FOUNDATIONS AND RACIAL EQUITY – APPLYING LESSONS LEARNED TO ADVANCE A FAIRER SOCIETY

Some grantmakers have recog- Racism Caucus that seeks to racial justice lens to grantmaking nized the historical legacy of poli- “unite policymakers, advocates, allows foundations to make sus- cies and practice that continue to academics and grassroots organi- tainable long-term differences perpetuate racial inequality and zations to define structural racism, that benefit all Americans. lead to disparate life opportunities understand the ways in which it “Racial equity is shaped by multi- because of race for communities operates, and ultimately to dis- ple issues; the intent … [is] to of color. Several foundations, mantle it.” highlight racial equity as a start- including the Charles Stewart Deborah Harrington, current ing point for addressing wide- Mott, Ford and Tides foundations, president of the Woods Fund of spread equity.”67 This quote cap- recognize the problems of structur- Chicago, identifies the problem tures concisely the potential sys- al racism and provide funds for succinctly with implicit versus tems-wide impact that adopting a important work to groups, includ- explicit racial justice language: racial equity lens can have on ing the Applied Research Center, “[racial justice is] implicit in our broader issues of social equity. It the Center for Social Inclusion and guidelines and mission statement, is the starting point for founda- the Philanthropic Initiative for [however] the lens is poverty, not tions to begin identifying areas of Racial Equality, that use the struc- race, and by addressing poverty, overlap in programs to address tural racism framework to inform we are generally looking at peo- them more systemically and their programs. The Kirwan ple of color but not saying it increase foundation impact on Institute convened a Structural directly.”66 Indeed, applying a the public good.

14 SYSTEMS THINKING Feedback loops emerge: negative feedback comprises Systems theory is viewed better as a set of principles interventions that get absorbed by the system without that help us understand how complex structures and really changing it, keeping the status quo, while pos- systems work in relationship to each other. It involves itive feedback affects change at the systemic level by a better understanding of mutual causation. If cause affecting the institutions and structures themselves. In and effect are not easily separated out in a linear the framework of a systems approach, when a small form, philanthropic interventions that function in a linear model Our dominant mode of thinking is Newtonian: we think that there is will fail to address the a single cause and a predictable effect that is mechanical and dynamics that perpetu- unidirectional. So A causes B, and B causes C. The knower, the observer, ate racial inequality. is largely unaffected by this so, in a sense, seems inert or neutral to these Diagram 1.1 helps elu- cidate the differences systems. There was a period of time where people thought that we between the two eventually would know everything about the universe because it was a approaches. mechanical system. It also was based on the notion that if you see Moreover, just as something really complex, you could break it down into its constituent individuals struggle to make sense of a world parts and understand it, that the whole and the sum of its parts are in which linearity is exactly the same. This paradigm implied certainty. The uncertainty in a challenged, foundations systems approach challenges this notion of causation. It’s not linear or inevitably will encounter additive but mutual and cumulative.69 the same issues when they employ a systems — Dr. john a. powell, Executive Director approach in their grant- Kirwan Institute for the Study of Race and Ethnicity making. Changing the at The Ohio State University actual interactions of our institutions is no small task, but neither is change impossible. In fact, a sys- event or intervention has a large impact that trans- tems approach supports the idea that the only con- forms the system, it is a “catalytic change.” This stant is change. There is an inherent element of uncer- approach recognizes the relationships among institu- tainty in the systems approach: because an interventions and structures, allowing philanthropic initiatives tion does not necessarily lead to a predetermined out- to positively influence a seemingly unrelated compo- come, it is impossible to predict accurately the out- nent of the system because of their connectivity. come of a given philanthropic initiative. Different elements of the systems are in a state of constant flux so DIAGRAM 1.1 NEWTONIAN PERSPECTIVE VS. isolating cause and effect is nearly impossible. SYSTEMS THINKING Foundations working in relationship with each other see the collective impact of their funds rather than The Newtonian Perspective Systems Thinking seeking to connect program outcomes causally with their individual grants. Because we live in an increasingly interconnected world, what happens in one part of the world has an unanticipated ripple effect in another. Systems thinking challenges mechanical Newtonian models of thought and acknowledges the role of influence and power in everything.71 Systems and policies are interactive and mutually Social phenomena may be Causation is reciprocal, mutual, constitutive, and there often is a time delay after an understood by breaking down and cumulative. intervention before its effect is manifested fully. the sum of the constituent parts.

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 15 National Committee for Responsive Philanthropy

Philanthropy and transformative change Applying lessons from social justice grantmaking to Transformative change is understood best by con- adopt transformational change trasting it with transactional or distributive change. As NCRP has noted previously, conservative and pro- The transactional approach to change focuses on gressive philanthropy have contributed actively to the individual and continues seeking change in a social change efforts.75 In fact, the Foundation Center linear fashion while leaving the institutional and Independent Sector’s 2005 report on Social arrangement undisturbed. In institutional philan- Justice Grantmaking adapted NCRP’s definition of thropy focused on a single issue such as health social justice funding for its analysis of foundation care, grant A will result in better outcomes for giving trends. Noting that organizations ranging from group A, while grant B will result in better health the Heritage Foundation to the Mexican American outcomes for group B. As Dr. powell states, “Small Legal Defense and Educational Fund were established problems hurt us by enticing us to see things as sep- during the 1960s, funded primarily by philanthropic arate, while big problems are more likely to be seen monies, NCRP provided a concise definition of social relationally. … It is important for foundations and justice philanthropy: communities not only to do multi-issue work, but to see issues in relationship.”72 Social justice philanthropy is the practice of Foundations that adopt a transformative change making contributions to nonprofit organizations approach in their grantmaking are more comfort- that work for structural change and increase the able with the possibility of a time delay to see the opportunity of those who are less well off polit- impact of a philanthropic intervention. They do ically, economically and socially.76 not expect a logical series of interventions and outputs as defined linearly. They enhance equity Importantly, NCRP, the Foundation Center and for all marginalized groups by addressing the Independent Sector emphasize that this definition is issues in a holistic way. Philanthropy also should not intended to convey or support any specific ideo- identify clearly those grants intended for social logical or political position. Rather, it is a strategy for justice work. In a systems approach, intentional philanthropy to address root causes of systemic politi- identification of structural barriers allows grant- cal and socio-economic divisions. More than a makers and their grantees to start the process of decade of research by NCRP has documented the transformative change. It also is important for strategic philanthropy of conservative foundations and grantmakers that adopt a systems approach to their success at moving public policies by funding support grantees that work in relationship with think tanks, impacting education curricula and provid- each other. ing flexible funds to grantees, enabling them to be There is rich literature and analysis of cognitive more effective.77 NCRP does not believe that “progres- framing, inter- and intra-group identity, self-identi- sive” funders should mirror the behavior of “conserva- ty and other issues salient to a transformational tive” counterparts. The emphasis is on learning lessons agenda. A transformative agenda that moves us for holistic change, regardless of ideological leaning. closer to the end goal of a more inclusive and equi- Several studies of seemingly neutral universalist table society must be informed by a relational programs conclude that without an explicit recogni- analysis. Drew Westen recently posited that at a tion of barriers to equality in grantmaking, such initia- societal level, unconscious racist attitudes will per- tives can serve to reify deeply entrenched structures of sist unless “strategically framed messages on race privilege and hierarchy, no matter how well-inten- that appeal to the conscious mental process” are tioned. Universalist programs can and do result in adopted.73 Foundations that adopt systems theory gains for targeted beneficiaries;78 but the unconscious and tools to implement transformational grantmak- reifying of existing racialized structures that lead to ing to address inequality will benefit from disparate outcomes are a cause for concern. acknowledging the role of individual frames and Grantmaking that presumes systemic neutrality would cognitive schemas. Each person, grantee organiza- achieve their objectives more effectively if they tion and foundation brings personal frames74 to the respond to who benefits and apply “targeted univer- table, and this will affect how information is salism,” an approach that is targeted to benefit the processed and applied. most marginal, but benefits all in the long run.79

16 ADVOCACY, ORGANIZING, AND CIVIC contribution to society.83 Advocacy and organizing are ENGAGEMENT: PRACTICAL STRATEGIES FOR A the most effective strategies that allow such goals to be SYSTEMS APPROACH met and have significant measurable impacts. Advocacy, organizing and civic engagement have A growing number of nonprofits and grantmakers played essential roles in the development of our soci- are becoming more aware of the measurable impacts ety. Moreover, they are among the most effective of these strategies and the longer time-horizon need- strategies for implementing a systems approach and ed for this work to culminate in the original stated for achieving significant impact on a variety of issues. goals. Moreover, funders are seeing the potential for As stated by the Aspen Institute’s Nonprofit Sector broader sustainable changes over time by adopting Strategy Group, “Nonprofit organizations have long multi-strategy approaches in their programs. Human had a special role to play in keeping American democ- rights is one of the lenses through which this systemic racy vibrant and responsive. Most of the major social movements of the Funding advocacy and advocates is the most direct route to past century have taken shape within this sector supporting enduring social change for the poor, the and this set of institutions disenfranchised and the most vulnerable among us, including has been a seedbed as well for major policy the youngest and oldest in our communities. changes.”81 Historically, the right – Gara LaMarche, President, the Atlantic Philanthropies80 of nonprofit groups to organize and advocate was exercised to protest the relocation of Native change has been observed. According to the Ford Americans, seek the abolition of slavery, and secure Foundation, human rights “places the affirmation of civil rights for women and African Americans. Today, human dignity and equality at the center of domestic nonprofit organizations have made groundbreaking and foreign policy and counters unilateral tendencies strides to develop policies and programs that contin- with multilateral commitments, shared with other ue this role, exemplified by efforts to advance the liv- countries, to promote social and economic justice on ing wage movement, community-driven school a global scale.”84 Among foundations that have added reform and faith-based community organizing. In a human rights lens to their decision making are the 2000, the Aspen Institute formed the Nonprofit Sector JEHT Foundation, the Atlantic Philanthropies, the Strategy Group to explore the role of nonprofits in Ford Foundation, the Shaler Adams Foundation and civic participation and advocacy. Stating that “non- the California Women’s Foundation.85 profit participation in the policy process takes advan- Civic engagement and social capital have made tage of the special insights, competencies, and per- important contributions to enhanced participatory spectives that nonprofit organizations have by virtue democracy and policy innovations. Historically, non- of their involvement with important societal issues profit organizations and other voluntary associations and their ties to a wide range of different social built bridges across race, class and religion, and were groups,”82 the ideologically diverse Strategy Group highly effective at fostering public discussion and unanimously agreed that advocacy is a fundamental mobilizing millions of people to achieve significant function of the nonprofit sector and one that must be national policy outcomes. Social capital appears to encouraged in the future. have declined over the last quarter century, and many One of the principal reasons indicated by founda- researchers have blamed this decline on a shift away tion practice to invest in advocacy is the fact that many from grassroots mobilization and advocacy strategies foundations’ missions are meant to support structural intended for the most marginalized groups of society. or systemic change. As Emmett D. Carson notes, any Researchers such as Theda Skocpol describe a shift foundation that has a change-oriented mission must from voluntary associations to agile, professional fund public policy work. Failure to do so is a disservice advocacy organizations during the social movements to the founding members’ vision of that foundation’s of the 1960s and 1970s that came to rely more on

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 17 National Committee for Responsive Philanthropy

“inside the beltway” lobbying and media work than ed) public policy strategy. Often, the best advice can on mobilizing a membership base to achieve their come from informed but neutral third-party experts goals. She argues that the new civic landscape who have a better understanding of the policy became “oligarchic” because foundation grants process. These experts should be used as appropriate favored professional groups over grassroots ones. and necessary by foundations to build their knowl- Advocacy groups had no impetus to appeal to or edge and understanding of the world of policy advo- mobilize a mass base, and there was little bridge- cacy, and the important role that this, together with building across class. As a result, bottom-up policies organizing and civic engagement, plays in moving benefiting working-class and poor constituencies policy agendas. Grantees can benefit from policy were drowned out in the legislatures. Yet, Skocpol advice as well; many nonprofits do not engage in notes that nonprofits and foundations that continue to advocacy or lobbying because they do not have the work with these strategies have resurrected social right information or appropriate human resources to capital and seen positive outcomes through sustained, devote to this work. It is, thus, important for founda- long-term initiatives. She states, “Taking longer and tions to invest in the capacity of their grantees to asking for a greater commitment may result in greater engage substantively in policymaking on Capitol Hill payoff. … It takes time to connect leaders and mem- and in local communities. bers to one another across places and institutions, yet, this is the only way to draw large numbers of people Investing in advocacy, community organizing and into a movement and the best way to generate sus- civic engagement: contributing to our pluralistic tained leverage to make a difference beyond one democracy issue, battle or election.”86 When a grantmaking institution adopts a socially Skocpol’s work is important for understanding inclusive systems approach that includes advocacy, civic engagement and participatory democracy, but organizing and building multi-issue alliances, it has her analysis merits an important caveat. While advo- the potential to increase and unite the voices of cacy and organizing work informed by communities those who historically are marginalized and improve is integral to advancing the needs and voices of those their lives. Indeed, the Center for Social Inclusion marginalized by our institutions and structures, cen- identified funders as a crucial component of suc- tralized advocacy work informed by the needs of cessful multiracial coalition work in rebuilding the local communities also is effective. Systemic change City of New Orleans. As the center noted, the key is in any form that challenges existing power structures finding the appropriate balance between the para- and arrangements that lead to inequality are impor- digms of racialism and inclusiveness. With more tant to achieving long-term, sustainable improve- funders adopting inclusion in their grantmaking, ments in a holistic socio-economic paradigm. As there is hope for advancing a more level playing Gara LaMarche notes, “In the interdependent ecosys- field for all. tem of advocacy and social change, elite voices play Andrew Friedman, co-director of Make the Road an important part, too, and they always have.”87 by Walking, an African American and Latino-led There are several resources available to founda- community organization in Brooklyn, summarized tions that either want to begin or increase their fund- the importance and expanded impact of using a ing of advocacy and organizing, specifically, policy racial justice approach to the organization’s language work. Many foundations do not fund these vital areas discrimination work: “[A] civil rights framework has of work because they lack the in-house knowledge or been important. If we had just framed our work as capacity to understand what role community organiz- poor people’s issues, we would not have gotten the ing and advocacy can play in advancing their mission support from the broader civil rights, African and promoting sustainable, participatory democracy. American, and Latino communities.”89 Friedman’s Some foundations might have knowledgeable staff movement building was strengthened by building that can help educate their boards but the majority of alliances using civil rights as the framework. This foundations do not employ staff. “Policy experts”88 example demonstrates that sustainable, long-term outside of the foundation world can offer important impact is best achieved when foundations and guidance and tools for developing a legally sound groups take a holistic rather than a single-issue (process-related) and well-informed (substance-relat- approach to their work.

18 The recognition of multi-issue and integrated Why foundations should support advocacy, public approaches to address persistent discrimination is policy and community organizing evident in the work of several foundations and non- Organizations working on policy advocacy, organiz- profits. For example, the National Funders for ing and civic engagement offer a powerful real-world Lesbian and Gay issues adopted a racial equity lens example of systems thinking and theory in action. This in 2008 following recognition of the fact that the work enhances our pluralistic democracy, provides experience of discrimination as an LGBTQ person of voice to communities that would otherwise not be color synthesizes sexual orientation and racial heard, demonstrates an understanding of systemic dimensions. Similarly, acknowledging the crossover reform and results in tremendous impact. of environmental protection with workers rights With several notable exceptions, civic engage- informed by race and gender discrimination is a ment, advocacy and organizing are under-funded by more powerful movement building strategy that foundations, and community groups struggle to raise allows single-issue focused groups to develop inte- the resources needed to engage in this important grated approaches across organizations by identify- work. Many foundations avoid advocacy funding for ing areas of common interest. Several legal practi- a variety of reasons, including several misperceptions: tioners have begun to realize the power of interna- that funding advocacy and organizing might be tional law and rights. Groups working in the envi- “risky”; that outcome measurement is transferable ronmental justice movement, civil rights and prison- more easily to direct services; and that lobbying is the ers rights find the broad and binding nature of U.N. same as advocacy or organizing. Research indicates human rights law as less subject to interpretation that advocacy across the nonprofit sector is inconsis- and thus more useful in highlighting U.S. exception- tent, focuses on crisis situations, and does not sustain alism exemplified by disparities in our criminal jus- ongoing, consistent efforts. Some of the barriers to tice system. The United States accounts for 5 percent advocacy include limited resources, restricted and of the world’s population but 24 percent of the inconsistent funding by foundations, and a misunder- world’s prisoners and, as a nation, we incarcerate standing of tax regulations.91 people at a significantly higher rate than our peer Michael Edwards92 posits that foundation boards countries, resulting in 7 of every 1,000 of our resi- find it difficult to calculate the “social rate of return” dents in prisons.90 from investments in citizen action, leaving them to

ADVOCACY AND ORGANIZING IN ACTION: LIVING WAGES

Economic security and the fight $750 million in additional wages more than 3.2 million workers for living wages are persistent annually. Studies of living wage and resulted in more than $2.5 issues addressed by advocates ordinances find that they benefit billion in new annual wages.113 and community organizers nation- primarily lower-income adults In 2007, this movement finally wide, often with notable success. working full time and positively compelled Congress to increase In 1994, Baltimoreans United in impact communities of color. They the federal minimum wage to Leadership Development (BUILD) also benefit employers by reduc- $7.25 an hour in three phases, led a coalition that secured pas- ing turnover rates and improving after it stagnated for 10 years sage of the first living wage ordi- productivity.112 Coalitions also at $5.15 an hour. Significantly, nance in the country, triggering a secured local and state minimum the living wage movement has national movement. Since then, wage boosts benefiting millions of marshaled a broad base of sup- organizing and advocacy groups workers. Economists estimate that port for the idea that people have formed coalitions and suc- minimum wage increases enacted who work full time should be ceeded in passing at least 123 liv- in Massachusetts, San Francisco, able to earn enough to meet ing wage ordinances that provide Illinois, Florida and New York their basic needs and those of more than 250,000 workers with between 2001 and 2005 benefit their families.

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 19 National Committee for Responsive Philanthropy

rely on “business metrics and measures of success, could do more advocacy work if they had funds to privilege, size, growth and market share as opposed hire a policy specialist, while 65 percent identified to the quality of interactions between people in civil unrestricted funding as essential to being able to society.” Arguing that quantifiable outcomes are not expand their work in this area. Nonprofits that the exclusive or best metrics for structural change, he received private support from foundations and indi- states that “in civil society processes of engagement viduals are significantly less likely to engage in advo- with other institutions and constituencies may be cacy than those groups that receive government fund- more important as a measure of impact than tangible ing. Advocacy and policy work are integral to the outputs. … Social transformation requires humility country’s nonprofits’ role of providing a “voice to the and patience, a mirror image of the impatience and voiceless,”94 making this work all the more resonant short-term thinking that drives most markets and for many institutional grantmakers that seek to impact entrepreneurs.” the structures and systems that can move American Similarly, Prudence Brown notes that “founda- society closer to equality of achievement. tions’ quest for greater impact is not usually accom- panied by an increased tolerance for conflict or Quantifying the impact of a foundation’s support of risk.”93 Many foundations display risk-aversion in advocacy, organizing and civic engagement and their grantmaking, funding “safe” direct services or measuring and evaluating outcomes practicing “patronage” philanthropy in support of Foundations that support organizing have sought to elite interests. Funders that support advocacy grants quantify the impact of their grantees’ work. Some tend to do so with timeframes too abbreviated to have estimated a return on investment to demonstrate demonstrate measurable, community-level impact. A impact by analyzing the foundation’s contributions. survey conducted by the Johns Hopkins University The Jewish Funds for Justice (JFJ), the Needmor Fund, found that while nearly three-quarters of nonprofits and the Solidago Fund all undertook analyses that engage in advocacy and lobbying work, 85 percent of aggregated the quantifiable successes of a set of respondents devoted minimal resources to either type grantees and then calculated a return on investment of activity. Citing lack of human and financial based on their support of those grantees. JFJ estimat- resources, 68 percent of respondents said that they ed conservatively that 5 million people benefited

ADVOCACY AND LOBBYING: A CRITICAL DISTINCTION

A persistent barrier to funding only private funding to conduct ly advance the public interest. and engaging in policy advocacy advocacy work.104 Although lob- Nonprofit policy participation is is the flawed perception that bying can be utilized as an advo- in the public interest, regardless of advocacy and lobbying are syn- cacy strategy, advocacy does not whether it is in the pursuit of con- onymous. This is a cause of con- necessarily have to involve lobby- servative, liberal or non-ideologi- cern in the nonprofit sector ing. This is a critical distinction. cal objectives.105 As Hodding because the word “lobbying” has Federal law governs how much Carter III, former president and undeservedly taken on negative lobbying a nonprofit organization CEO of the John S. and James L. connotations among some chari- can undertake, but there are no Knight Foundation, said, “All voic- table organizations. Many non- limits on how much a nonprofit es, all points of view should be profit leaders believe that receiv- can engage in other types of heard. A full, unfiltered and unfet- ing government money precludes advocacy. Neglecting advocacy tered debate is the prerequisite for lobbying; in fact, an analysis of ultimately has a negative impact good policy. Those who are most nonprofit advocacy found that on society because advocacy affected by policy decisions nonprofits that receive govern- allows the nonprofit sector to should have at least as much ment funding are significantly share its valuable knowledge with opportunity to influence them as more likely than those that receive key decision makers and ultimate- everyone else.”106

20 from all of its grantees’ victories and that its distribu- parts of the United States. The first report conducted tion of $5 million in grants over five years contributed in New Mexico found a high return on philanthropic to $2 billion in benefits, or a ratio of $1 to $500. investments that funded this work: every dollar dedi- When outliers were removed, the return on invest- cated to advocacy and organizing yielded $157 in ment was more modest but still impressive— $1 to community-wide benefits. $50.95 The aggregate dollar amount of 18 Needmor The Association of Community Organizations for grantees’ wins totaled more than $1.37 billion. Reform Now (ACORN) sought to demonstrate its Needmor’s investment generated a return on invest- impact by quantifying in dollars as many of its cam- ment of $1 to $512—very close to the figure calculat- paign victories as possible over a ten-year period. The ed independently by JFJ.96 Solidago refined the cumulative impacts were impressive—more than $15 methodology to discount the value of the grantee vic- billion in benefits to lower and moderate income res- tories based on whether the group deserved full or idents between 1995 and 2004.102 shared credit for the win and to discount the founda- Whatever the benchmarks or methods of meas- tion’s contribution based on what proportion of the urement, researchers agree that the context for group’s budget Solidago’s grant represented. The engaging in organizing and advocacy must be con- Solidago return on investment was $1 to $59—close sidered when gauging success. In assessing impact, to the more conservative return on investment that JFJ it is crucial that funders and advocacy groups seek to calculated.97 All three foundations provide demon- understand their contribution to policy change, strable examples of impact resulting from investments rather than try to make a causal link between one in organizing and advocacy. grant or one group’s work and the policy outcome. Recent multi-year efforts by funders to invest in Increasing flexible grant dollars for advocacy and and evaluate the impacts of community organizing organizing is an important and practical tool for also have helped to demonstrate the effectiveness of grantmakers working in a systems approach. The this strategy in creating significant change. The Ford W.K. Kellogg Foundation has developed a tool to Foundation commissioned an evaluation of its help its program staff and evaluators assess social Community Organizing Initiative, which provided change efforts guided by a systems approach, con- resources to local community organizing groups tributing an important resource for foundations that through local and regional funders in five communi- adopt this approach.103 In short, although evaluation ties.98 The Charles Stewart Mott Foundation commis- of social change initiatives in a systems approach sioned a six-year study to measure the impact of appears challenging because it is non-linear, there community organizing for school reform on student are tools available to help institutional philanthropy outcomes in seven sites.99 The Cross City Campaign make this important paradigm change in their for Urban School Reform also showed the value of approach to grantmaking. organizing for school reform in its study of five organizing groups.100 All of these evaluation efforts Resources for grantmakers to support advocacy, documented significant returns. Notably, organizing organizing and civic engagement for school reform was found to be critical to improv- In 2004, the Alliance for Justice published a guide for ing student performance and developing youth and funders interested in supporting advocacy. The parent leadership. alliance states that “advocacy” encompasses a broad Recent research has demonstrated the tremendous range of activities that can influence public policy, strides made in the field of advocacy evaluation. including research, policy analysis, public education, There has been a proliferation of reports, guides and lobbying, and voter engagement.107 The guidebook tools to help funders understand what advocacy is, also includes detailed benchmarks for evaluating the what their grantees legally can do to engage in and success of advocacy efforts. It makes the important support advocacy, and how to evaluate its success. point that even if a policy goal is not achieved, there Under its Grantmaking for Community Impact are many outcomes that are important to measure, Project,101 NCRP is producing a series of reports, such as increased knowledge of the political process, Strengthening Communities, Increasing Opportunities, awareness-raising around an issue, and leadership that documents the positive impacts of advocacy, development. These outcomes build the capacity of organizing and civic engagement work in different organizations and increase their likelihood of suc-

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 21 National Committee for Responsive Philanthropy

ADVOCACY AND ORGANIZING IN ACTION: Foundation, Innovation Network, and Continuous AFFORDABLE HOUSING Progress. This growing literature offers several innovative methods for evaluating advocacy. More recently, Affordable housing is an important priority for GrantCraft and the Center for Community Change’s many community organizing and advocacy Linchpin Campaign published a useful guide for fun- groups. The Housing Trust Fund movement has ders on community organizing.108 Many experts been especially effective. A housing trust fund is agree that funders and grantees each should have a an innovative policy solution to address the limit- theory of change or logic model that lays out what ed resources for affordable housing. These funds they hope to accomplish and how to get there. There are established at the state or local level, usually is a clear consensus around the value of tracking out- with a dedicated public revenue source. Local comes and interim and capacity-building bench- decision makers have the discretion to decide marks. There is a range of models for developing out- how the funds can best serve diverse housing come measures related to the stages of a policy cam- needs. As federal housing budgets have been paign. The number and types of stages vary by model reduced over the last few decades, the number of but typically include things such as public awareness, housing trust funds has grown dramatically, from base- and alliance-building, policy change and less than 25 in 1985 to nearly 600 in at least 43 implementation, and the direct impact of policy on states today. As of 2006, local and state housing individuals and communities.109 trust funds were generating $1.6 billion annually Recent efforts to measure leadership development for affordable housing across the country—more and the skills gained by citizens who participate in than double the amount produced by funds just community organizing are important as well, bringing five years earlier.114 The vast majority of funds or rigor to an area that is often viewed as intangible. For the legislation that enables them was secured People Improving Communities through Organizing through organizing and advocacy. Many of them (PICO), a faith-based network, Paul Speer devised and depend on these strategies to maintain and implemented a methodology to measure the public increase revenue for affordable housing. For policy leadership skills of PICO leaders in California. example, in 2008, the George Gund Foundation Speer found a statistically significant difference in partnered with The Coalition on Homelessness policy skills, knowledge and experience between and Housing in Ohio to increase resources for PICO leaders and ordinary residents.110 Heidi Swarts the Ohio Housing Trust Fund, which serves more measured leadership capacity and political efficacy than 87,000 families each year.115 for her comparative study of faith-based and secular organizing groups. She found that leaders had developed specific skills such as chairing meetings, conducting research and public speaking. Groups had a ceeding in the next advocacy effort. Thus, losing an greater sense of empowerment after becoming advocacy campaign the first time should not be involved in the organization.111 viewed narrowly as a “failure.” The alliance groups Advocacy, community organizing and civic advocacy evaluation benchmarks as follows: out- engagement are effective strategies with demonstra- come benchmarks (a policy result achieved and ble impact that promote social inclusion and build improvements made in programs or services); social capital, especially for marginalized popula- progress benchmarks (key activities accomplished tions. Some funders are growing increasingly com- and incremental results obtained); and capacity- fortable with supporting this work because they do building benchmarks (activities that strengthen an have measurable impact, especially when considered organization’s ability to advocate). over a longer time horizon. These strategies are tools The ensuing years have seen some positive collab- to promote long-term systemic changes that challenge orations between foundations and advocacy and the norms and values carried by our institutions. As organizing groups, such as Blueprint R&D, the more funders take on this work, there are numerous California Endowment, GrantCraft, the Ford existing resources for them to build their understand- Foundation, the Harvard Family Research Project, the ing of the critical role this work plays in advancing James Irvine Foundation, the Annie E. Casey participatory democracy.

22 SETTING THE BAR FOR PHILANTHROPY able groups. These grantmakers comprise approxi- AT ITS BEST mately 10 percent of the total NCRP sample. There To ensure that our Criteria for Philanthropy at Its Best likely are many more foundations that prioritize spe- are informed by current practice, NCRP worked with cial populations in their grantmaking but either do not the Foundation Center to produce a custom dataset provide data to the Foundation Center or might not on marginalized communities. The dataset reported have done so consistently in the timeframe from which disaggregated foundation giving by eleven intended the NCRP sample was drawn. In other words, being beneficiary groups for a three-year period from excluded from this sample does not imply that an indi- 2004–2006. NCRP used the three-year mean to avoid vidual grantmaking institution is not providing this the potential influence of high or low outliers that can important type of support. sometimes be generated in a single year by unusual A quartile analysis of the data shows that the top 25 grants. The resulting data present a reasonably reli- percent of our sample provided between 36–100 per- able picture of the percentage of grants or grant dol- cent of all grant dollars to benefit disadvantaged com- lars each foundation gave based on the eleven intend- munities; the second quartile had a range of ed beneficiary groups NCRP identified as marginal- 20.3–35.6; the third quartile had a range of 8.5–20.2, ized or vulnerable.116 and; the bottom quartile’s range was 0.0–8.5 percent. There were 809 large foundations in Foundation As the quartile ranges show, an exceptionally large Center’s database117 with sufficient data to be included proportion of our sample for grantmaking intended to in NCRP’s analysis of intended beneficiaries. While benefit marginalized communities does so at disap- there now are approximately 1,200 foundations in the pointingly low levels: 71.32 percent of foundations in database, some could not be included in the analysis our sample provided less than $1 out of every $3 because they did not provide data for all three years. granted for the intended benefit of marginalized com- Total average grant dollars awarded by these 809 grant- munities. Dropping the threshold to 20 percent of makers was $14,926,350,872 for the time period ana- grant dollars intended to benefit marginalized groups, lyzed.118 Although some grants are coded for multiple or $1 out of every $5 granted, 49.44 percent of foun- intended beneficiary groups, the total amounts of dations fell below that mark; 50.56 percent of the sam- grantmaking intended to benefit specific populations ple provided at least that much or more in such grants. are not double-counted in the total giving numbers. These figures are even more disturbing when taking NCRP also used aggregate statistics from the into account that the data analysis includes only large Foundation Center’s annual reports for 1998–2006 as a foundations. Previous NCRP research has suggested broader frame in which to analyze our custom dataset. that smaller foundations provide significantly lower per- NCRP believes that the three year combined dataset centages of their grant dollars for the intended benefit of 120 provides the best indicator of current trends in the field. vulnerable communities than do larger foundations. Within the 2004–2006 time period from which the Leading the field, 108 foundations, or about NCRP dataset was drawn, in the aggregate, 33.2 per- 13.35 percent of our sample, provided at least 50 cent of all grant dollars were provided for all 11 119 intended beneficiary groups. That means that GRAPH 1.3 FOUNDATION SUPPORT FOR approximately $1 out of every $3 granted by larger MARGINALIZED COMMUNITIES, BROADLY DEFINED foundations was intended to benefit communities with the least wealth, opportunity or power and that $2 out of every $3 granted could not be classified as benefiting those communities. The median for the proportion of grant dollars intended to benefit vulnerable commu- 33% nities was 20.9 percent for all 794 foundations that made at least one such grant. To set a standard metric ■ Designated for Philanthropy at Its Best, NCRP examined individual for Marginalized Communities foundation grantmaking intended to benefit marginal- 67% ized communities. The 80 foundations that provided ■ Not Designated the highest proportion of their grant dollars gave at for Marginalized least 56 percent of their grant dollars to benefit vulner- Communities

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 23 National Committee for Responsive Philanthropy

percent of their grant dollars for the intended bene- percent of our sample, provided at least 25 percent fit of marginalized communities. This is the bench- of their grant dollars for social justice. This is the mark for Philanthropy at Its Best. A list of all 108 benchmark for Philanthropy at Its Best.126 A list of all foundations that currently meet or exceed this 56 foundations that currently meet or exceed this benchmark can be found in the Data Appendix. benchmark can be found in the Data Appendix. In a 2005 report, the Independent Sector and the Foundation Center found that grantmaking for struc- CONCLUSION tural change efforts (using “social justice philanthro- All foundations should prioritize those with the least py” as proxy) comprised a meager 11.8 percent of wealth, opportunity and power in their grantmaking. total grants in 1998 and fell to 11 percent in 2002.121 Regardless of a foundation’s mission, investing in This quantitative analysis was the first attempt to organizations and programs that focus on special pop- establish a consistent benchmark and provide insight ulation groups benefits our pluralistic society. It also into the state of social justice philanthropy. In the advances substantive democracy and moves the United 2009 report, which analyzed grants made in 2006, States closer to a truly inclusive society with equal this figure rose by a muted 1 percent to 12 percent.122 opportunities for life achievements for all its residents. Michael Edwards advocates that foundations demon- A significant body of research demonstrates the strate their commitment to addressing systemic and effectiveness of advocacy, organizing and civic engage- structural change by allocating at least 50 percent of ment as sophisticated strategies to promote long-term their annual payout for social justice initiatives.123 change. Funding for these strategies remains limited To look more closely at current giving in this arena, because of misperceptions of the risks and rewards. As NCRP analyzed disaggregated data in social justice the snapshots of advocacy and organizing groups, and grantmaking. Grants that meet the social justice defi- the legal definitions and resources provided in this nition described in this chapter and in the Foundation chapter demonstrate, some exemplary institutional Center’s publications on social justice grantmaking are grantmakers are currently funding this important work included. Because the Center tracks only larger foun- and are able to see returns on their investments. dations, there very likely are many more founda- NCRP acknowledges that certain foundations have tions—such as the Woods Fund of Chicago and the missions that make it implausible for them to prioritize Liberty Hill Foundation of Los Angeles—that fund marginalized communities at the 50 percent level. But social justice work that are not included in our sam- all grantmakers, regardless of mission, can see benefits ple. The list drew the leading social justice grantmak- from prioritizing the most vulnerable in their grant- ers from the Foundation Center’s database124 with suf- making. For example, a foundation that focuses on the ficient data to be included in our analysis of systems arts might find benefit from directing some of its fund- or structural change grants. Some foundations could ing to special population groups such as the disabled, not be included in the analysis because they did not single parents, and people with HIV/AIDS. Arts organ- provide data for all three years. izations sometimes have difficulty securing support NCRP’s analysis of social justice grantmaking as a from policy makers because they are perceived as share of overall grantmaking demonstrates great vari- serving only elite interests. A strategic effort by arts ability among the leading U.S. social justice grant- funders to intentionally include marginalized commu- makers. In the aggregate, 682 of our total sample of nities could yield important community and public 809 foundations, or 84 percent of the sample, made policy benefits. Premised on philanthropy’s special at least one social justice-related grant during the role to nurture our pluralistic democracy, NCRP advo- three-year time period; average giving over three cates that all grantmakers make marginalized commu- years was $1,549,135,953 comprising 11,958 grants. nities a high priority in their giving. Just over half of all In spite of 84 percent of the sample having made foundations analyzed meet or exceed a 20 percent at least one social justice grant in the time period ana- threshold for giving to benefit marginalized communi- lyzed, many did so at very low levels. There is high ties. NCRP views this as a bare minimum standard for variability even among the top 25 social justice grant- exemplary philanthropy. We challenge grantmakers makers; the range is 43–81 percent of this type of whose missions seem on the surface to be unrelated to grantmaking as a share of overall giving.125 these issues to reexamine those assumptions in light of Leading the field, 56 foundations, or about 6.9 the arguments presented in this chapter.

24 Criterion I: Values

A grantmaker practicing Philanthropy at Its Best serves the public good by contributing to a strong, participatory democracy that engages all communities. a) Provides at least 50 percent of its grant dollars to benefit lower-income communities, communities of color and other marginalized groups, broadly defined b) Provides at least 25 percent of its grant dollars for advocacy, organizing and civic engagement to promote equity, opportunity and justice in our society

DISCUSSION QUESTIONS NCRP encourages staff and trustees of foundations and other grantmakers to engage in serious discussions about each criterion and the chapter that elaborates on the criterion. Sample discussion questions are provided here to help get you started.

> Which parts of the chapter did you like the most? > How is advocacy, community organizing and civic Why? engagement relevant to our current grantmaking or programmatic work? Have we ever considered > Which parts did you like the least? Why? how these strategies might align with our mission?

> Do you agree that it’s important to contribute to a > What percentage of our foundation’s grant dollars strong, participatory democracy and to support do we estimate are for advocacy, community marginalized communities? Why or why not? organizing and civic engagement? Are we satisfied with that percentage? Why or why not? How > How do we define marginalized communities in did we establish our current position? the context of our mission? Have we ever thought about how increasing our giving to marginalized > What else from this chapter should inform our cur- communities might align with our mission? rent grantmaking priorities?

> What percentage of our foundation’s grant dollars > If we want to make any changes based on this dis- do we estimate are intended to benefit marginal- cussion, what will need to happen in order to ized communities, broadly defined? Are we satis- make those changes? What are the next steps? fied with that percentage? Why or why not? How did we establish our current position?

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 25 National Committee for Responsive Philanthropy

NOTES FOR CHAPTER I: VALUES

1. The eleven groups are: economically disadvantaged; racial or 18. Burd-Sharps, Lewis and Martins , Op. cit. p 10. ethnic minorities; women and girls; people with AIDS; people 19. For a more detailed discussion, see Amartya Sen, with disabilities; aging, elderly, and senior citizens; immi- Development as Freedom (New York, NY: Knopf, 1999); Burd- grants and refugees; crime/abuse victims; offenders and ex- Sharps, Lewis and Martins, Op. cit. offenders; single parents; and LGBTQ citizens. 20. Ibid. 2. Heather Boushey, Shawn Fremstad, Rachel Gragg and Margy 21. Burd-Sharps, Lewis and Martins, 2009, Op. cit: p. 14–15. It Waller. Social Inclusion for the United States, (Washington, D.C.: is beyond the scope of this writing to do justice to the extant Center for Economic and Policy Research & Inclusion, April, literature and research on human development and capabili- 2007) http://www.inclusionist.org/files/socialinclusionusa.pdf. ties. For additional resources, please see the works of 3. Alexis de Tocqueville. Democracy in America and Two Essays Amartya Sen and Martha Nussbaum. on America, translated by Gerald E. Bevan (London, U.K.: 22. Boushey et al., Op cit. Penguin Books, 2003; original publication of Democracy in 23. Boushey et al., Op. cit.: p. 2. America, 1835). 24. Ibid., p. 3. 4. Ibid. 25. Sue Kirchhoff. “Bernanke: Fixing income gap will take educa- 5. The term “marginalized communities” is used interchange- tion,” USA Today, February 7, 2007, http://www.usatoday.com/ ably with “special populations,” “disadvantaged groups,” money/economy/fed/2007-02-06-bernanke-education_x.htm. “underserved communities,” “underrepresented” or “vulnera- 26. Cecile Andrews, “What’s it Going to Take? Challenging Our ble communities” in this chapter. Faith in Wealth,” United for a Fair Economy, http://www.faire- 6. Martin Luther King Jr. Strength to Love (New York, NY: Harper conomy.org/news/challenging_our_faith_in_wealth; United & Row, 1963). Nations Habitat, “American cities as unequal as African and 7. Bill Gates. “A New Era of Technical Leadership at Microsoft” Latin American cities according to UN-HABITAT’s new State (remarks at news conference Redmond, WA, June 15, 2006), of the World’s Cities Report 2008/9: Harmonious Cities,” http://www.microsoft.com/presspass/exec/billg/speech- (Press release, 2008), http://www.unhabitat.org/downloads/ es/2006/06-15transition.mspx. docs/presskitsowc2008/PR%201.pdf; Burd-Sharps, Lewis and 8. Andrew Carnegie. The Gospel of Wealth, (Indianapolis, IN: Martins, Op. cit. Indiana University Center on Philanthropy, 1993; Original 27. Uri Berliner. “Haves and Have-Nots: Income Inequality in publication: North American Review, CXLVIII, June, 1889), p. America,” NPR.org, February 5, 2007, http://www.npr.org/ 4, p. 10. templates/story/story.php?storyId=7180618. 9. Marcia Stepanek and Cristina Maldonado. “Rockefeller 2.0: 28. “Table A-3: Selected Measures of Household Income Gates Relaunches Philanthropy,” MSNBC June 24, 2008. Dispersion: 1967 to 2005,” U. S. Census Bureau, http://www.msnbc.msn.com/id/25332025/. http://www.census.gov/hhes/www/income/histinc/p60no231 10. Bill Gates. 2009 Annual Letter from Bill Gates: The Economic _tablea3.pdf. Crisis, January, 2009, p. 8, http://www.gatesfoundation.org/ 29. Burd-Sharps, Lewis and Martins, Op. cit., p. 133. annual-letter/Pages/2009-economic-crisis.aspx. 30. Bruce H. Webster Jr., and Alemayehu Beshaw. Income, 11. Birger A. Pearson. Ancient Roots of Western Philanthropy Earnings and Poverty Data from the 2006 American (Indianapolis, IN: Indiana University Center on Philanthropy, Community Survey, (Washington, D.C.: U.S. Census Bureau, 1997). August 2007). The Gini index provides a summary measure 12. John Rawls. A Theory of Justice (Cambridge, MA: Harvard of inequality. It ranges from 0 to 1, with numbers closer to 1 University Press 1971). indicating deep levels of inequality. 13. john a. powell. “The Needs of Members in a Legitimate 31. “Table H-4. Gini Ratios for Households, by Race and Democratic State,” Santa Monica Law Review 44 (2004). Hispanic Origin of Householder: 1967 to 2007.” U.S. Census 14. Bill Clinton. “Remarks by the President at Presentation of the Bureau, http://www.census.gov/hhes/www/income/histinc/ National Medal of the Arts and the National Humanities h04.html; Field Listing - Distribution of Family Income - Gini Medal” (Speech, Washington D.C.: September 29,1999), Index,” U.S. Central Intelligence Agency, https://www.cia.gov/ http://clinton4.nara.gov/WH/New/html/19990929.html. library/publications/the-world-factbook/fields/2172.html. 15. Michael Walzer. Spheres of Justice: A Defense of Pluralism 32. Excluding Alaska and Hawaii; figures apply to the 48 contigu- and Equality (New York, NY: Perseus Publishing, 1983). ous states and the District of Columbia. 16. Rick Cohen. Building Solid Foundations: New Approaches to 33. “Table H-4. Gini Ratios for Households, by Race and Substantive Philanthropic Accountability (Washington, D.C.: Hispanic Origin of Householder: 1967 to 2007.” U.S. Census National Committee for Responsive Philanthropy, December, Bureau, http://www.census.gov/hhes/www/income/histinc/ 2006), p. 16. h04.html. 17. Amartya Sen. foreword to The Measure of America: American 34. Alan Berube and Bruce Katz. Katrina’s Window: Confronting Human Development Report 2008–2009, by Sarah Burd- Concentrated Poverty Across America (Washington, D.C.: The Sharps, Kristen Lewis, and Eduardo Borges Martins (New York, Brookings Institution, October 2005). NY: Columbia University Press, 2008), xi. 35. Berube and Katz, Op. cit.

26 36. Berube and Katz, Op. Cit.; “The Enduring Challenge of 55. As the report states: “Significant discrimination remains, raising the Concentrated Poverty in America: Case Studies from cost of housing searches for African Americans and Hispanics, cre- Communities Across the U.S.,” Community Affairs Offices of ating barriers to homeownership and housing choice, and helping the Federal Reserve System & The Metropolitan Policy Program to perpetuate racial and ethnic segregation.” Margery Austin Turner, at The Brookings Institution, http://www.frbsf.org/cpreport/. Stephen L. Ross, George Galster and John Yinger. Discrimination in 37. H.S. Terrell. “Wealth accumulation of black and white fami- Metropolitan Housing Markets: National Results from Phase I of lies: the empirical evidence,” The Journal of Finance, 26 (May HDS2000 (Washington, D.C.: The Urban Institute, 2002), 1971): 363. http://www.urban.org/UploadedPDF/410821_Phase1_Report.pdf. 38. L.A. Keister and S. Moller. “Wealth inequality in the United 56. Statement by Charles W. Grim. D.D.S., M.H.S.A, Assistant States,” American Review of Sociology, 26 (2000): 63. Surgeon General Director, Indian Health Service at the 17th 39. Chuck Collins. “A Problem of Riches,” Sojourners Magazine Annual IHS Research Conference and the International (September/October 2008), http://www.ips-dc.org/articles/694. Meeting on Inuit and Native American Child Health. (Seattle, 40. Edward N. Wolff. Recent Trends in Wealth Ownership, 1983- WA, April 29, 2005). Infant mortality rates are reported as a 1998 , Working paper No. 300, (New York, NY: Bard College proportion of 1,000 live births. and Jerome Levy Economics Institute, 2000). 57. Joseph Stewart. “Diversity and Leadership in Philanthropy” 41. Brian K. Bucks et al. “Recent Changes in U.S. Family (session at the Council of Michigan Foundations 35th annual Finances: Evidence from the 2001 and 2004 Survey of conference, Dearborn, MI, October 23, 2007), Consumer Finances,” Federal Reserve Bulletin (2006): A4. http://www.michiganfoundations.org/s_cmf/bin.asp?CID=577 42. Collins, Op. cit.; Burd-Sharps et al., Op. cit. 4&DID=12691&DOC=FILE.PDF. 43. Edward N. Wolff. Changes in Household Wealth in the 1980s 58. Ibid. and 1990s in the U.S. Working paper No. 407, (New York, NY: 59. Ibid. New York University and Jerome Levy Economics Institute, 60. Ibid. 2004), http://www.levy.org/pubs/wp407.pdf. 61. “U.S. Interim Projections by Age, Sex, Race and Hispanic 44. Burd-Sharps, Lewis and Martins, Op. cit., p. 134. Origin,” U.S. Census Bureau, http://www.census.gov/popula- 45. Wolff 2004, Op. cit. Table 6. tion/www/projections/usinterimproj/natprojtab01a.pdf. 46. Based on NCRP data analysis of Foundation Center data giv- 62. Andrew Grant-Thomas & john a. powell. “Toward a Structural ing by special population groups. The search set is based on Racism Framework,” Poverty & Race (November/December the Foundation Center’s grants sample database, which 2006), http://www.prrac.org/full_text.php?text_id=1095&item includes all of the grants of $10,000 or more awarded to _id=10188&newsletter_id=90&header=Symposium:%20Stru organizations by a sample of 1,172 larger foundations for ctural%20Racism. circa 2004, 1,154 for circa 2005, and 1,263 for circa 2006. 63. Personal communication with john a. powell, 2008. For community foundations, only discretionary grants are 64. “Definition: Structural Racism,” Center for Social Inclusion, included. Grants to individuals are not included in the file. http://www.centerforsocialinclusion.org/struct_racism.html. In-depth data analysis is included later in this chapter. 65. Conley, Op. cit.; Jagpal, Op. cit.; Oliver and Shapiro, Op. cit. 47. Boushey et al., Op. cit. 66. Will Pittz and Rinku Sen. Short Changed: Foundation Giving 48. Dalton Conley. Being Black, Living in the Red (Berkeley, CA: and Communities of Color (Oakland, CA: Applied Research University of California Press, 1999); Shehnaz Niki Jagpal, Center, 2004), 10. Racial Inequality in the United States: Analyzing the Wealth 67. Robert Espinoza. LGBTQ Grantmakers 2008 Report Card on Gap, (Master’s thesis, Georgetown University, 2007); Melvin Racial Equity, (New York, NY: Enterprise Press, Funders for L. Oliver and Thomas M. Shapiro. Black Wealth/White Lesbian and Gay Issues, 2008). Wealth: A new perspective on racial inequality, (New York, 68. Interview with john a. powell, July, 2008. For a fuller discus- NY: Routledge, 1997, 2006). sion of this interview and corresponding analysis, please see: 49. Boushey et al., Op. cit. p 4. Emphasis added. Niki Jagpal. “Changing the World for All: A New Approach” 50. Joseph Stewart. “Making the Case for Racial Equity” (remarks Responsive Philanthropy, (Fall 2008): 6. at Building the Dream community dialogue, Battle Creek, MI, 69. Adapted from interview and discussion by Niki Jagpal with March 17, 2008). Dr. john a. powell, July 9, 2008. 51. Measured in 2007 constant dollars. “Table H-5. Race and 70. john a. powell. “Structural Approaches to Produce Schools Hispanic Origin of Householder—Households by Median that Work for Everyone” (presentation, Grantmakers for and Mean Income: 1967 to 2007,” U.S. Census Bureau, Education annual conference, Baltimore, MD, October 20, http://www.census.gov/hhes/www/income/histinc/h05.html. 2008). 52. Wolff 2000, Op. cit. 71. For a fuller discussion of this interview and corresponding 53. Ling Xin Hao. “Immigration and wealth inequality in the U.S.” analysis, please see Jagpal 2008, Op. cit. (paper presented at the Population Association of America 72. Jagpal 2008, Op. cit. annual meeting, Boston, MA, April 1–3, 2004. 73. Drew Westen. The Political Brain; The Role of Emotion in 54. Barbara A. Butrica. Do Assets Change the Racial Profile of Deciding The Face of the Nation (New York, NY: Public Affairs, Poverty among Older Adults? Opportunity and Ownership 2007); john a. powell. “Addressing 21st Century Poverty: Facts No. 8 (Washington, D.C.: The Urban Institute, March, Transformational strategies for talking, thinking and acting on 2008), http://www.urban.org/UploadedPDF/411620_racial issues of poverty,” (presentation at Northwest Area Foundation _poverty.pdf. Public Policy Roundtable, St. Paul, MN, July, 2008).

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 27 National Committee for Responsive Philanthropy

74. A simple way to think of cognitive frames is as a mental “fil- 94. Lester M. Salamon & Stephanie Lessans Geller 2008. ing system” that we all use to make sense of the world. Nonprofit America: A Force for Democracy? (Johns Hopkins 75. The National Committee for Responsive Philanthropy. Social University Listening Post Project, Communiqué #9: Nonprofit Justice Philanthropy: The latest Trend or a lasting lens for Advocacy and Lobbying, 2008), http://www.jhu.edu/listening- grantmaking? (Washington, D.C.: The National Committee for post/news/pdf/advocacy9.pdf. Responsive Philanthropy, 2005). 95. See Report on Outcomes of JFJ Grantmaking 1996–2001, 76 . For a fuller definition, see Ibid. or Steven Lawrence, ed. Social (unpublished report, Jewish Funds for Justice, May 2003). Justice Grantmaking: A report on Foundation Trends, (New 96. See Lisa Ranghelli. Program Assessment Executive Summary York, NY: Independent Sector & The Foundation Center, (Toledo, OH: Needmor Fund, 2004), http://www.needmor- 2005). fund.org/special_report.htm. 77. Sally Covington. Moving a Public Policy Agenda: The strate- 97. See Community Benefits Report Brief (Northampton, MA: gic philanthropy of conservative foundations. (Washington, Solidago Foundation, 2008), http://www.solidago.org/. D.C.: The National Committee for Responsive Philanthropy, 98. Marilyn Gittell, Barbara Ferman, and Charles Price. Assessing 1997, 2004); Jeff Krehely et al. Axis of Ideology: Conservative Community: An Evaluation of the Ford Foundation’s foundations and Public Policy. (Washington, D.C.: The Community Organizing Initiative, Volume II (2004–2007) National Committee for Responsive Philanthropy, 2004). (New York, NY: Howard Samuels Center, 2007). 78. Medicare and Social Security are two such prominently noted 99. Kavitha Mediratta et al. Organized Communities, Stronger Schools: programs. a Preview of Research Findings. (Providence, RI: Annenberg 79. powell July 2008, Op. cit. Institute for School Reform, Brown University, March 2008). 80. The Atlantic Philanthropies. Why Supporting Advocacy Makes 100. Eva Gold, Elaine Simon and Chris Brown. Successful Sense for Foundations - Atlantic Reports: Investing in Change Community Organizing for School Reform Strong (New York, NY: The Atlantic Philanthropies, 2008). Neighborhoods, Strong Schools: The Indicators Project on 81. Nonprofit Sector Strategy Group. The Nonprofit Contribution Education Organizing (Chicago, IL: Cross City Campaign for to Civic Participation and Advocacy, (Washington, D.C.: The Urban School Reform, March 2002). Aspen Institute, Fall 2000), 12,.http://www.nonprofitre- 101. The Grantmaking for Community Impact Project analyzes search.org/usr_doc/Advocacy.pdf. advocacy and organizing wins through the lens of the groups 82. Ibid., p. 5. sampled to deconstruct the persistent myth that funding such 83. Emmett D. Carson. “On Foundations and Public Policy: work does not provide donors with quantifiable returns. Why the Words Don’t Match the Behavior,” in Power in 102. Lisa Ranghelli. The Monetary Impact of ACORN Campaigns: Policy: A Funder’s Guide to Advocacy and Civic A Ten Year Retrospective, 1995–2004 (New Orleans, LA: Participation, ed. David F. Arons (St. Paul, MN: Fieldstone Association of Community Organizations for Reform Now, Alliance, 2007), 14. November 2006). 84. Larry Cox and Dorothy Q. Thomas, ed. Close to Home: Case 103. The W.K. Kellogg Foundation. Designing Initiative Evaluation: Studies of Human Rights Work in the United States (New York, A Systems Oriented framework for Evaluating Social Change NY: Ford Foundation, 2004), 6. Efforts. (The W.K. Kellogg Foundation, September, 2007), 85. Cox and Thomas, Op. cit. http://www.wkkf.org/DesktopModules/WKF.00_DmaSupport/ 86. Theda Skocpol. Diminished Democracy: From Membership to ViewDoc.aspx?fld=PDFFile&CID=281&ListID=28&ItemID=5 Management in American Civic Life (Norman, OK: University 000521&LanguageID=0. of Oklahoma Press, 2003) 273–274. 104. Salamon & Lessans Gellar, Op. cit. 87. Gara LaMarche. “When Foundations Should Lead – and 105. Adapted from Bass et al., Op. cit. When They Should Get Out of the Way,” in Power in Policy: 106. Hodding Carter III. foreword to Power in Policy: A Funder’s A Funder’s Guide to Advocacy and Civic Participation, ed. Guide to Advocacy and Civic Participation, ed. David F. Arons David F. Arons (St. Paul, MN: Fieldstone Alliance, 2007). (St. Paul, MN: Fieldstone Alliance, 2007). 88. E.g., The Center for Lobbying in the Public Interest, the 107. Alliance for Justice. Investing in Change: A Funder’s Guide to Alliance for Justice. For additional resources, please see Supporting Advocacy. (Washington, D.C.: Alliance for Justice, NCRP’s Resource List for Funding Advocacy, Organizing and 2004). Civic Engagement, http://www.ncrp.org/campaigns-research- 108. Craig McGarvey and Anne Mackinnon. Funding Community policy/communities/gcip/gcip-resources. Organizing: Social Change Through Civic Participation, (New 89. Quoted in Pittz and Sen, Op. cit., p. 13. York, NY: GrantCraft and the Linchpin Campaign, 2009). 90. Burd-Sharps, Lewis and Martins, Op. cit, p. 142 109. For additional resources, please see NCRP’s Resource List for 91. Gary D. Bass et al. Seen but not Heard: Strengthening Nonprofit Funding Advocacy, Organizing and Civic Engagement, Advocacy (Washington, D.C.: The Aspen Institute, 2007). http://www.ncrp.org/GCIPresources.asp. 92. Michael Edwards. Just Another Emperor? The Myths and 110. Paul W. Speer. Evaluation Report – People Making Public Realities of Philanthrocapitalism (New York, NY: Demos: A Policy in California: The PICO California Project. (Human and Network for Ideas & Action, 2008). Organizational Development, Peabody College, Vanderbilt 93. Prudence Brown, et al. Toward Greater Effectiveness in University, May 2002). Community Change: Challenges and Responses for 111. Heidi J. Swarts. Organizing Urban America: Secular and Faith- Philanthropy, (New York, NY: The Foundation Center, Based Progressive Movements (Minneapolis, MN: University September 2003), 20. of Minnesota Press, 2008).

28 112. Jeff Thompson and Jeff Chapman. The economic impact of local living wages, briefing paper 170 (Economic Policy Institute, February 16, 2006), http://www.epi.org/content.cfm/bp170. 113. Ranghelli November 2006, Op. cit. 114. Housing Trust Fund Progress Report 2002 and Mary E. Brooks Housing Trust Fund Progress Report 2007 (Frazier Park, CA: Housing Trust Fund Project, Center for Community Change 2002 & 2007). Examples of campaigns can be found in the Housing Trust Fund Project News, a newsletter of the Center for Community Change. 115. The Atlantic Philanthropies, Op. cit. 116. The eleven groups are: economically disadvantaged, racial or ethnic minorities, women and girls, people with AIDS, people with disabilities, aging, elderly, and senior citizens, immigrants and refugees, crime/abuse victims, offenders and ex- offenders, single parents, and LGBTQ citizens. 117. The search set is based on the Foundation Center’s grants sample database, which includes all of the grants of $10,000 or more awarded to organizations by a sample of 1,172 larger foundations for circa 2004, 1,154 for circa 2005, and 1,263 for circa 2006. For community foundations, only discretionary grants are included. Grants to individuals are not included in the file. 118. This figure is the denominator used in NCRP’s calculations; if analyzed within giving sub-samples, these figures would be higher and likely overstate the current giving trends. Using the full samples average total giving provides a more comprehensive framework for analyzing the different types of grants. 119. Please see the data appendix for further details. 120. NCRP compared 2005 giving for the intended benefit of economically disadvantaged groups and for racial minorities by larger and smaller Minnesota foundations using data from the Foundation Center and from the MN Council on Foundations and found that the larger foundations provided support for vulnerable populations at much higher levels than the smaller foundations did. The methodologies used to create the data sets are extremely similar but not identical, resulting in our statement that there is a strong indication, but not proof, that smaller foundations are less supportive of vulnerable communities than are larger foundations. 121. Lawrence, Op. Cit. 9, Table 2. 122. Foundation Center. Social Justice Grantmaking II (New York, NY: Foundation Center, 2009). 123. Edwards 2008, Op. Cit. p. 88-89. 124. The search set is based on the Foundation Center’s grants sample database, which includes all of the grants of $10,000 or more awarded to organizations by a sample of 1,172 larger foundations for circa 2004, 1,154 for circa 2005, and 1,263 for circa 2006. For community foundations, only discretionary grants are included. Grants to individuals are not included in the file. 125. Please see the data appendix for a list of the top 25 social justice grantmakers and the proportion of each foundation’s overall giving that this type of grant comprised. 126. The two metrics described in this criterion are not additive. It is assumed that the 25 percent of grant dollars going for advocacy and organizing work will be a subset of the 50 percent of grant dollars going for the intended benefit of marginalized communities.

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 29

Chapter II: Effectiveness

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 31 National Committee for Responsive Philanthropy

Criterion II: Effectiveness — At A Glance

A grantmaker practicing Philanthropy at Its Best serves the public good by investing in the health, growth and effectiveness of its nonprofit partners.

a) Provides at least 50 percent of its grant dollars for general operating support

b) Provides at least 50 percent of its grant dollars as multi-year grants

c) Ensures that the time to apply for and report on the grant is commensurate with grant size

> The ability of nonprofits and grantmakers to be grants. This is the benchmark for Philanthropy effective—to have impact on the issues, causes at Its Best. and communities they care about—is of para- mount importance. > Applying for and reporting on grants primarily facilitate accountability, but these activities also > General operating support is fundamental to can help grantees clarify their thinking and enhancing grantee impact; it provides organ- improve their work. However, too often, applica- izations with the flexible funding they need tions are needlessly complicated and evalua- to achieve their missions effectively. In the tions are not used appropriately, creating signif- aggregate, only 16 percent of grant dollars is icant burdens for grantees. Exemplary grantmak- provided for general operating support. But ers understand the important concept of the net 125 exemplary foundations (15.5 percent of grant and ensure their application and reporting our sample) provided at least 50 percent of requirements are proportional to the grant size their grant dollars for general operating sup- and useful for all parties. port, meeting the benchmark for Philanthropy at Its Best. > Because grantmakers rely primarily on grantees to carry out their charitable purposes, > Multi-year funding also is crucial for the health, exceptional funders engage nonprofits in growth and effectiveness of nonprofits. This meaningful partnerships, which help both par- funding allows grantees to respond to crises ties advance their missions and contribute to and opportunities, maintain staff continuity the public good. This creates an environment and organizational leadership, overcome of trust and maximizes the social benefit of unforeseeable challenges and improve plan- philanthropy. Grantmakers committed to true ning. Disappointingly, more than 40 percent of partnership provide sufficient overhead in foundations in our sample did not provide any project grants, fund capacity building and lead- multi-year grants. Leading the field, however, ership development, and interact with 132 foundations (16.3 percent) provided 50 per- grantees in respectful and responsive ways as cent or more of their grant dollars as multi-year part of enhancing effectiveness.

32 Chapter II: Effectiveness

Long-term and unrestricted funding supports the learning and innovation needed to have an impact. If foundations are serious about leadership development and supporting their nonprofits, start with giving leaders what they say they most need – multiyear, unrestricted, general operating support.

– John Esterle, Executive Director The Whitman Institute127

nstitutional grantmakers rely primarily on non-grant- Many contend that there is an insurmountable Imaking nonprofits to carry out their charitable pur- power differential between grantmakers and poses and maintain their tax exempt status. grantees because of the “power of the purse.” This Considerable attention has been paid in recent years to dynamic creates an imbalance in the important increasing the social value and public benefit of phi- relationship of the supply and demand sides of the lanthropy, with a special emphasis on efficacy. There nonprofit sector. Re-conceiving the power asym- are many compelling reasons for foundations to invest metry as a relationship that reflects true partner- in their grantees’ effectiveness; unfortunately, too few ships offers funders one way to help grantees grantmakers provide the types of support needed most understand that they are working toward the same by grantees. In addition, a majority of grantmakers goals. A grantmaker’s reliance on its grantees to overburden their grantees with excessive administrative carry out its charitable purpose places an impetus requirements, diminishing sector-wide impact. on the funder community to identify ways that Research consistently suggests that when grantmakers engage grantees on a level playing field. When provide general operating support and multi-year fund- grantmakers treat their grantees as true partners, ing, the civil society sector is able to maximize impact. they can work toward building a relationship Making application and reporting requirements com- premised on mutual trust. By providing generous mensurate with grant size is another way in which exem- grant dollars for true general operating support, plary grantmakers can enhance the sector’s effectiveness. making commitments of two or more years in Investing in the long-term sustainability of a strong, multi-year grants, and demonstrating trust in its diverse and enabled nonprofit civil society sector by grantees by making administrative requirements engaging grantees as true partners is an important corol- commensurate with grant size, a foundation dis- lary to help foundations achieve their own missions. plays exemplary philanthropy in practice.

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 33 National Committee for Responsive Philanthropy

GENERAL OPERATING SUPPORT and grantees alike. It eases administrative burdens on Improving the effectiveness and impact of the civil both and allows funders to invest in an entire organi- society sector remains a salient and increasingly zation and mission. As Carol Watson, program officer researched issue. NCRP, Grantmakers for Effective at the Rockwell Fund, notes, “The strategy should be Organizations, the Center for Effective Philanthropy, to invest in organizations that are successful and to 133 CompassPoint, researchers at the Center on trust them to do the social engineering.” Unlike Philanthropy at Indiana University and many founda- program support with predetermined metrics and out- tions and grantees have highlighted the importance of come measures, general operating support provides the types of grants or the resources needed to bolster both parties with the needed flexibility to increase the the infrastructure and internal capacity of nonprofits impact of the democratic civil society sector. as important to the health and impact of grantee Moreover, such support does not imply a lack of organizations. As the Center for Effective Philanthropy accountability. In its 2007 Action Guide for funders, (CEP) states, “Ultimately, the beneficiaries of better Grantmakers for Effective Organizations (GEO) debunks several common misperceptions We know enough about the field and organizations about providing core support. Among these is and their behavior to know that organizations need patient the issue of a perceived financial support. We know these organizations are most lack of accountability in this type of support in need of general operating support and most in need of the compared to restricted program support. GEO assurance and the confidence that our support will be there. counters this, noting that “there is very little —Gregg Behr, Executive Director, the Grable Foundation128 difference in accountability between project and general operating foundation–grantee relationships are not just grantees support. In both cases, the grantmaker needs to work and foundations, but the people and issues they seek with the grantee to design evaluation questions that 134 to affect through their work. By working more pro- clarify the impact of the grantee’s work.” ductively together, foundations and grantees can cre- Some foundation leaders also recognize the ate more positive social impact. This, after all, is the importance of core support. Paul Brest, president of ultimate goal of both parties.”129 the William and Flora Hewlett Foundation, raises sev- General operating support is fundamental to eral salient issues in his 2003 discussion of strategic enhancing grantee effectiveness and impact. Yet, insti- philanthropy in the Stanford Social Innovation tutional philanthropy has a history of preferring proj- Review. Notably, he links the importance of providing ect or program support over general operating sup- operating support with maximizing impact in his 135 port. A 2002 board briefing document developed by framework of “strategic philanthropy.” Kathleen the Council on Foundations notes that the debate Buechel and Esther Handy highlight the F.B. Heron about which type of support is a better strategy dates Foundation and the Whitman Institute’s approaches to back about a century, nearly as old as institutional successful core support funding. Both foundations grantmaking itself.130 NCRP historically has advocat- emphasize attribution or collective impact: Heron ed that grantmakers increase significantly the propor- uses a performance scorecard to assess overall orga- tion of grant dollars allocated as core, unrestricted nizational success and Whitman states that “the direct support.131 Table 2.1 summarizes key highlights of role our funding plays is less important to us than the 136 NCRP’s recent research and work on this issue. overall success of the organization” when assess- General operating support132 is unrestricted funding operating support initiatives. ing that an organization may use as it best sees fit to In addition to research done by NCRP, GEO, CEP achieve its mission. The unencumbered nature of true and others, Jeanne Bell et al.’s survey of nearly 2,000 core support offers myriad benefits to grantmakers nonprofit executives and program managers also

34 demonstrates the value that grantees place on flexible TABLE 2.1 RECENT NCRP WORK ON CORE general operating support. The analysis found that SUPPORT “respondents ranked providing more unrestricted and multiyear support as the two funder actions that 2002 State of Philanthropy. Biennial publica- 137 would most help them in their work.” These find- tion included several analyses and com- ings are reinforced by a recent series of focus groups mentary that highlighted the need for done by GEO that found that executives from founda- increased core support. tions and grantee organizations alike believe that providing more general operating support would be one 2003 The Core of the Matter. Findings summa- of the most beneficial ways grantmakers can support rized conclusions from NCRP’s conven- nonprofit success.138 As noted in the Harvard ing of nonprofit leaders that 50 percent Business Review, “by helping grantees to improve of grant dollars should be provided in their own capabilities, foundations can affect the this way. social productivity of more resources than just their slice of the whole.”139 2003 Axis of Ideology: Conservative Credit: contribution and attribution Foundations and Public Policy. Research In an important 2008 supplement to its Action Guide, demonstrated impact of long-term core GEO returned to the issues of accountability and pre- support among conservative foundations, sumed ceding of control. As the supplement notes, noting that mainstream foundations were “Compared with grants for specific programs or proj- less likely to provide support in this way. ects, general operating support requires grantmakers to give up some control over where the money goes. 2004 Standards for Foundation and Corporate This does not mean, however, that grantmakers have Grantmaking. Publication called for 50 to give up on the expectation that their investments percent of grant dollars for unrestricted will yield demonstrable results. Rather, grantmakers support. NCRP presented testimony to need to think about assessment in a different way. the Senate Finance Committee advocat- This means changing the focus from program-level ing for significant increases in core sup- outcomes to the social impact of the organization as port by grantmakers. a whole.”140 This returns institutional philanthropy’s focus to its bottom line—to maximize the social benefit and impact of its contributions by investing in the 2005 Not All Grants Are Created Equal. long-term effectiveness of its grantees. By demonstrat- Report demonstrated that conservative ing trust in their nonprofit partners in this way, and foundations were more likely than main- looking at alternate metrics and accountability mod- stream ones to provide core support. els for core support, the lack of control or the perceived inability to measure success is defrayed. 2007 A Call to Action: Organizing to Increase As GEO notes in debunking the perceived myth of the Effectiveness and Impact of a funder’s loss of influence and impact in developing Foundation Grantmaking. Report sum- programs to solve problems, “increased general oper- marized findings from nonprofit leaders’ ating support can lead to greater impact for both par- focus group discussions convened by ties. General operating support also can strengthen NCRP in 2005 and 2006 from urban the relationship, leading to more influence for the and rural areas. grantmaker and a more productive partnership. Instead of supporting part of a program, the grantmaker is contributing to the organization as a whole.”141 is the foundation’s contribution to the organization as NCRP, GEO, researchers at Harvard University and a whole that is important, not the attribution of certain grantmakers that provide substantial core support are outcomes to a particular funder. As Brest states, among those that emphasize the importance of re- “Providing general operating support is no different conceiving the grantmaker’s role in terms of credit: it from any other activity that depends on many peo-

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 35 National Committee for Responsive Philanthropy

ple’s contributions … where no individual makes a port grants. One prominent example comes from the difference, but where aggregate contributions are crit- William and Flora Hewlett Foundation. Paul Brest ical.”142 Similarly, Chuck Hamilton, executive direc- advocates providing more grant dollars to “negotiated tor of the Clark Foundation, notes the important role general operating support,” grants that allocate fund- that core support plays in addressing community ing toward core operations with caveats and restric- needs and states, “Knowing where the money is going tions to preserve accountability. Such support is can be overly seductive. Some foundations make the defined as a grant in which “the funder engages in a mistake of looking at the number served vs. the num- due diligence process, which culminates in an agree- ber actually helped. We have to get comfortable with ment about what outcomes the organization plans to evaluating operating support — looking at financials achieve, how it plans to achieve them, and how and other paperwork, trusting the organization by progress will be assessed and reported.”145 talking with them”143 Even the Council on The California Wellness Foundation uses a similar Foundations noted this needed paradigm shift to but more flexible approach to core support grants, rethink institutional philanthropy’s approach to how it clarifying the impact of the grantee’s work and design- perceives credit. The 2002 board briefing document ing an evaluation mechanism in partnership with the includes quotes from prominent grantmakers of vary- grantee. In its 1999 annual report, this funder noted ing types in support of operating support. The “collec- the demands of fundraising and project-specific tive glory” of grantees’ overall work, “trust,” and grants as placing “contrived requirements” that nega- investments in capacity building and infrastructure tively impact grantee effectiveness. The report suc- are among the benefits highlighted by the Pew cinctly summarized the benefits of core support: Charitable Trusts, the Albert Kunstadter Family “Nonprofit organizations are given the opportunity to Foundation and J.P. Morgan Chase.144 assess and address internal needs. …With the aid of Buechel and Handy address the challenge of unrestricted grants, nonprofit organizations can measuring the impact of general operating support strengthen their infrastructures, reevaluate missions based on funder perspectives articulated at the 2007 and otherwise set themselves on a strategic course for Capital Ideas symposium cosponsored by Harvard’s long-term success. Above all, core operating support Hauser Center for Nonprofit Organizations and the can serve as a catalyst, opening the door to discus- Nonprofit Finance Fund. They encourage funders and sions of ‘big picture’ topics and investing in the vision grantees to engage in deliberate conversations about and ideas of nonprofit leaders.”146 Gary Yates, presi- the effectiveness of core support, to share metrics tied dent and CEO of the foundation, explained its deci- to organizational health and outcome measurement, sion to begin providing half of its grants in the form of and to suggest identifying appropriate ways for grant- core support. Noting that other funders remained makers to get credit for their core support contribu- “ambivalent” about core support, he said that the tions to grantees. As Hank Beukema of the McCune change could be one of the most strategic ways for Foundation notes in addressing the perceived loss of the foundation to support its grantees. Addressing the credit, “We need to encourage these funders to share value that core support adds, he said, “While project the stage with others and to take a longer term view.” funding tends to stretch and even weaken nonprofits, This statement echoes CEP’s findings that core support core-operating dollars can have the opposite effect: alone is insufficient; rather, core support provided strengthening organizations and helping them stay with a sufficient time frame is what grantees value focused on their mission. Now that’s adding most in their funders. value!”147 The California Wellness Foundation’s grantmaking demonstrates how core support and program Accountability support grants are complementary. When the founda- Despite the findings about the benefits of general tion announced its decision to provide half of its operating support, some grantmakers still believe that grants as core operating support, it remained commit- core support diminishes accountability compared to ted to providing the balance of its grants as program project-specific support with predetermined metrics support to ongoing health initiatives. of success. To address this perceived “accountability The Sobrato Family Foundation, which provides gap,” some foundations have taken steps toward try- exclusively general operating support grants to non- ing to build accountability mechanisms into core sup- profits in Silicon Valley, places even fewer restrictions

36 on grantees, Sobrato’s executive director Diane Ford part of the funder and grantee.” says, “Our bottom line is to build robust, healthy local 5. By giving grantees more control, they are enabled organizations to serve local public needs. It makes to generate innovative solutions. “It is a grantee- sense to give them the money and let them put it centered approach instead of an approach pow- where they need to put it to fulfill their missions. They ered by a funder’s agenda.” know best where that is.”148 Another example is the 6. General support grants align with the long-term Hawaii Community Foundation, which was struggling interest of the foundation’s board. “The board can with how to measure impact and then realized how become engaged in thinking about the big-picture much of the qualitative information it had was, in needs of the community.”150 fact, rife with metrics. This funder’s impact metrics evolved from the stories that their organizations Grantee organizations ultimately are accountable shared with them. The experiences of the Hawaii to their communities and constituents. This is the non- Community Foundation are especially relevant for profit sector’s raison d’être: social impact. rethinking impact and assessment of core support Accountability from a grantee to a grantmaker also is grants.149 important for numerous reasons, the most obvious The 2002 Council on Foundations (COF) board being disclosure of how grant dollars were used. True briefing document lists six reasons that some funders general operating support and accountability are not, prefer general operating support over program sup- however, mutually exclusive. port: Flexibility 1. Helps grantees build and sustain their capacity and Institutional grantmakers can find that providing core infrastructure. “An organization cannot be effec- support helps them meet their own interests. For tive without efficient operations and strong man- example, NCRP’s A Call to Action highlights the work agement.” of Woods Bowman, Elizabeth Keating and Mark 2. Contributes positively to grantee sustainability. Hager in the section on “organizational slack,” a con- 3. Keeps grantees focused on mission. cept very familiar to many in the private sector who 4. Core support creates a more level playing field link it with organizational effectiveness. “Slack” is a because it builds trust and improves the relation- buffer of resources that allows an organization to ship between the funder and the grantee. “Limited adapt to changes in the environment, respond to new or short-term project funds can lead to less than opportunities and adjust programmatic priorities successful endeavors and frustration on both the based on on-the-ground realities. As Rick Cohen, for-

CORE SUPPORT AND MEASURABLE IMPACT154

The Blue Shield of California pletion of the initiative in 2006 Shield of California Foundation Foundation provides one example found that fully 98 percent of grants to raise additional public or of a grantmaker that found ways to respondents singled out the substan- private funds.” One clinic even quantify the impact of its core sup- tial role core support played in their described how flexible funding port grants. The foundation spon- ability to cover operating expenses, allowed for new hires to relieve sored the Core Support Initiative, sustain service levels, and cover overtaxed clinical care personnel, providing more than $12 million in uncompensated costs. Beyond increase training and correspond- flexible financing to nearly 200 maintaining the infrastructure of ingly boost the morale of staff mem- community health clinics in these clinics, “respondents cited bers. This foundation identified the California “to cover whatever [the how core support funding helped measurable impact of its grantees clinics] need most, from utility bills to them to augment their visibility, cred- and attributed impact to the type of hiring new staff to expanding servic- ibility and legitimacy. In addition, support it provided that allowed for es.” Survey results following com- half the clinics leveraged Blue this impact: core support.

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 37 National Committee for Responsive Philanthropy

mer executive director of NCRP and author of the investments to build and strengthen nonprofit infra- report, states in discussing organizational slack, structure.156 A report from the Center for Effective “Because they don’t have to be immediately and Philanthropy (CEP) found that the type, duration and restrictively pumped into program operations, unre- size of grants all are intimately connected with non- stricted resources can be used for important organiza- profit perceptions of the impact of the grant on effec- tional slack purposes that enhance effectiveness and tiveness. CEP found that general operating support impact. In their view, investment income is a particu- grants of sufficient size and duration generated the larly appropriate source of revenue but the proportion highest ratings.157 But, as the CEP report states, core that will be able to generate large sums for this pur- support alone is insufficient to ensure a grantee pose is slim.”151 Grantees, particularly smaller organ- organization is enabled to succeed and increase its izations, often lack investment income and thus unre- impact. Core support must be provided with a long stricted core support serves as the organizational enough timeframe for the grant recipient to demon- slack instead, allowing grantees the flexibility to adapt strate its impact. As CEP states, “Most grants are sim- to ever-changing environments and to respond to pro- ply too small and short term for it to matter much to gram opportunities and crises. grantees whether they are for program or operating Dennis Derryck and Rikki Abzug highlighted the support. … It is not operating support alone that gen- “shock absorption” that core support provides grantees erates higher ratings of impact on the grantee organi- and note that insufficient flexibility can leave a grantee zation, but rather operating support of sufficient size vulnerable, especially in the wake of pressing needs. In and duration.”158 Additionally, policymakers and the words of an urban nonprofit participant in NCRP’s business gurus, including Hillary Rodham Clinton, focus group discussions, “Core money gives you time Bill Bradley and Jim Collins, also have noted the inef- for relationship-building, for forward-thinking.”152 ficiencies generated in the nonprofit sector from the NCRP and Bell et al.’s interviews and focus group dis- lack of multi-year funding and core support.158 cussions with grantee staff, particularly executive lead- Taken together, lack of sufficient flexible core sup- ers, consistently reflect increased trust in the grantmak- port funds with unrealistically short timeframes nega- er–grantee relationship as an important outcome of tively influence the civil society sector’s effectiveness providing general operating support as well.153 and decrease grantee impact. As a rural youth nonprofit organization’s representative stated during an NCRP focus group, “Being a model program and hav- MULTI-YEAR FUNDING ing all these national replications … a five-year grant Providing multi-year grants is crucially important for initially … allowed us time to implement the program the health, growth and effectiveness of nonprofits. A and evaluate it over a period of time that really significant portion of the literature on multi-year fund- showed results…. [With] a one to three year grant, you ing links this type of support with overall foundation don’t have the time to do that, and it’s just like contin- ually starting over again when you have those In recent years, however, funders have become increasingly short term grants. So that the fact that somebody conscious of their grantees’ need for long-term, had the foresight to offer a five-year grant really multi-year funding commitments to support organizational growth made the difference for us. It was the thing that and sound infrastructure. General operating support and helped us to be success- longer-term grants naturally align with the more ful and nationally recognized.”160 forward-looking and performance-centered evaluations… Multi-year funding, much like general operating support, provides — Kramer et al., FSG Social Impact Advisors155 nonprofits with the needed flexibility to

38 respond to both crises and opportunities. This funding TABLE 2.2 FOUNDATION AWARDED MULTI-YEAR allows grantees to maintain staff continuity and orga- GRANTS OF TWO OR MORE YEARS SOMETIMES, nizational leadership, overcome unforeseeable chal- OFTEN OR ALWAYS*** lenges and improve planning. Multi-year grants generally reduce the administrative burden for grantmak- RESPONDENT PERCENT ers and grantees. Similar to core support, once the goals and objectives of the grantee organization are All respondents 60 agreed upon, both parties are free to make more $10 million or less 47 strategic use of their time. Multi-year funding is dis- $10–$50 million 57 tinct from continuing support; multi-year grants offer $50–$100 million 62 grantees a firm commitment of funding for more than $100–$400 million 73 one year, while continuing support grants are a series More than $400 million 81 of renewable one-year grants from a foundation to the ≤ 169 same grantee. Continuing grants are important, but ***p 0.001 exemplary grantmakers provide multi-year grants.161 There appears to be emerging consensus across grantee satisfaction, does tend to increase the admin- the civil society sector that multi-year funds are as istrative burden on the grantee and the founda- fundamental to impact and effectiveness as core tion.”164 In short, it is possible that grantees simply do support grants. GEO’s Change Agent Project includ- not receive adequate long-term funding and, thus, are ed focus group discussions with nonprofit execu- less inclined to link the duration of the grant with tives who articulated increasing the amount of what they need when assessing their funders. multi-year funding as integral to grantee success. Moreover, the administrative burden noted by CEP Bell et al.’s survey of nonprofit executives found that echoes the frustrations of constant fundraising dis- more multi-year support ranked second only to more cussed in this section. Although continuous funding is general operating support among the types of sup- beneficial, NCRP sees such grants as necessary but port that funders could provide to help leaders of insufficient. Thus, exemplary grantmakers provide grantee organizations better implement their multi-year grants of at least two years or more. work.162 Case studies conducted as part of an over- Multi-year grants make it easier for nonprofits to head study by Indiana University’s Center on overcome the challenges identified by Bell et al.’s sur- Philanthropy solicited feedback from grantee CEOs vey of nonprofit CEOs; notably, these challenges are as well. The findings were similar to those seen in exacerbated by the paucity of real core support.165 As Bell et al.’s research. The short timeframe of most with unrestricted support, multi-year grants make it foundation grants was associated with grantee lead- easier to maintain staff continuity and foster organiza- ership burnout and frustration. Previous NCRP and tional leadership. Confirmed multi-year support allows GEO focus group discussions with nonprofit CEOs for better planning and reasonable compensation. found similar results.163 Participants in NCRP focus group discussions Kevin Bolduc et al. of CEP addressed the length of raised frustrations about the lack of multi-year funds funding in assessing foundation practices that as an impediment to their ability to meet their mis- improve grantee satisfaction. While the survey analy- sions. As a staff member of a rural youth nonprofit sis did not find an association between multi-year stated, “Giving us two- or even three-year grants, funding and grantee perceptions of foundations, it because that way the issue of training staff, you know notes that this may be attributable to the fact that very that you’re going to have the money over time, the few of the grantees surveyed actually received multi- investment is not going to be lost … Grants over a year funding (60 percent were one-year grants and 19 two- to three-year period would really be helpful to percent were three years or longer in duration). organizations for stability.”166 Coupled with the Moreover, CEP’s analysis found that close to 80 per- longer timeframe needed to achieve specific organi- cent of respondents had received grants from the zational outcomes raised in these discussions, the sta- same foundation and many reported receiving contin- bility and flexibility provided to grantees allows them uous funding. As CEP concludes, “The transactional to make better use of their resources and time, nature of this relationship, while not detrimental to depending on organizational needs.

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 39 National Committee for Responsive Philanthropy

A 2008 GEO survey, Grantmaking Practices that cally link this work with impact and effectiveness. Support Grantee Success: Survey Report,167 asked NCRP encourages those engaged in and supporting respondents questions about multi-year funding, i.e., exemplary philanthropic practice within the sector to grants with a duration of two or more years. GEO’s conduct additional research on this issue. Moreover, analysis of the data suggests a positive association because the Foundation Center tracks this type of sup- between foundation size and the likelihood of provid- port, NCRP’s preliminary analysis of multi-year ing multi-year support. Respondents from larger foun- grants, discussed in depth later in this chapter, makes dations were substantially more likely to report pro- a needed contribution to the sector to begin collect- viding multi-year grants; the smallest foundations ing data for future longitudinal comparisons and time- reported providing the least number of such grants series data. (47 percent) compared to the largest foundations (81 percent).168 These figures represent the low and high bounds observed in GEO’s analysis. A comparable ADMINISTRATIVE REQUIREMENTS proportion of the smallest foundations surveyed stat- Grantees encounter considerable variability about ed that they renewed one-year grants. Table 2.2 is what is needed for a grant application to be consid- adapted from GEO’s report and shows the association ered by a funder and spend significant time produc- between foundation asset size and provision of multi- ing unique grant proposals, reports and evaluations, year support. customized by individual funder. To avoid this counterproductive scenario, a grantmaker that prac- Our sector faces an effectiveness paradox. Funders, striving tices exemplary philanthropy seeks to simplify to be strategic and diligent, adopt what seem like sensible application and reporting application and reporting requirements. But these practices— requirements and makes reasonable administra- multiplied by thousands of grantmakers—place a heavy burden tive requirements of its grantees. on organizations seeking funding, hampering their ability The concept of the “net grant”173 is particu- to be efficient with their time and effective in their missions. larly relevant to grantmakers in determining —Jessica Bearman, Project Streamline172 what defines “reasonable” application requirements. The Nonprofit Finance The type of foundation also influences whether or Fund led by Clara Miller has made an important contri- not the funder is likely to provide multi-year support. bution to the field by introducing this idea. The “net The GEO survey compared the type of foundation with grant” is the total grant with the grantee’s fundraising, the likelihood of providing this support and found that reporting and other administrative costs subtracted from corporate (73 percent) and private foundations (67 the overall amount. Minimizing the transaction costs of percent) were much more likely than community fundraising for grantees has immediate benefits for both 174 foundations (36 percent) to report making multi-year funders and grantees. For example, shifting away grants.170 This finding is in keeping with community from cumbersome customized grant applications to foundations’ provision of general operating support. simple letters of inquiry, making funding guidelines These foundations are less likely than their corporate readily available on a foundation’s web site and reduc- and independent counterparts to provide general sup- ing the turnaround time for grant proposals are some port. However, community foundations reported pro- generally agreed upon good grantmaking practices to 175 viding a higher proportion of their grant dollars as core rethink the grant application process. support relative to three years ago.171 A recent report by Project Streamline identi- Beyond the works discussed above, there is a fied ten ways in which current practices by foundations scarcity of research on multi-year grants that specifi- create significant burdens on the time, energy and

40 effectiveness of nonprofits. It is a thorough and com- GRANTMAKER PRACTICES THAT NEGATIVELY pelling report that gives collective voice to what non- IMPACT SECTOR EFFECTIVENESS profits have been saying for years. The report was commissioned by several grantmaking associations, funder 1. Significant variability in grant application affinity and collaborative groups, and the National and reporting requirements 176 Council of Nonprofits. This collaboration is a posi- 2. Singular approach to requirements regard- tive example of donors and grantees working together less of grant size to identify the areas in most need to improve the civil 3. High costs of grant applications that might society sector. NCRP is encouraged that this project not be worth the effort will continue dialogue with funders and grantees to 4. Transferring grantmaker administrative identify and overcome impediments to effectiveness. requirements onto grantees Among the ten key areas identified by Project 5. Diminished grantee trust from overly burden- Streamline as “flaws in the system,” several relate some administrative requirements directly to making administrative requirements more 6. “Reports on a [grantmaker’s] shelf” some- reasonable. The research surveyed 858 foundations, times never are read held focus group discussions and conducted inter- 7. Grantees engage in “fundraising gymnas- views with foundations, nonprofits and intermediaries. tics” to satisfy administrative requirements Project partners worked with the Center for Effective 8. Funders overemphasis on due diligence, Philanthropy (CEP) to review findings from a set of CEP negatively impacts grantee effectiveness Grantee Perception Reports. CEP used data from per- 9. Counterproductive attempts to streamline ception reports of 170 foundations and coded 540 strategies such as e-filing grantee recommendations; the center also conducted 10. Self-imposed funder inefficiencies – 13 per- regression analyses to determine statistical signifi- cent of foundation dollars spent on adminis- cance and the predictive power of four variables relat- tration of grants ed to administrative requirements.177 Project Streamline’s report demonstrated that administrative Adapted from Drowning in Paperwork, Distracted from Purpose: requirements were identified by grantees as a signal of Challenges and Opportunities in Grant Application and lack of trust between the funder and the grantee, Reporting by Project Streamline (2008). something clearly detrimental to moving toward a more level playing field or engaging in a partnership model. Further, the report found that fully 13 percent of all foundation dollars is spent on administration,178 General operating and multi-year support require suggesting that current administrative requirements a different set of metrics than project-specific grants. create inefficiencies among funders as well. GEO notes, “As grantmakers consider how to assess the impact of general operating support, they should Evaluation requirements and efficiency: make sure their assessments do not stand in the way A philanthropic paradox of the broader goal of improving the capacity of Evaluations in particular have the potential to be a nonprofits to deliver meaningful results. This means drain on the time of nonprofits and foundations alike. using assessment as a platform for promoting learn- According to Alana Conner Snibbe, senior editor of the ing and continuous improvement among grantees. It Stanford Social Innovation Review, “Boards and fun- also means using assessment as a platform for a ders don’t misuse evaluations because they are dumb stronger grantmaker-grantee relationship and ensur- or lazy, or even because they are ornery. Instead, their ing that assessment does not become an added bur- misuses and abuses reflect the fact that good evaluation den for grantees.”180 is extremely difficult.”179 These findings are similar to Institutional grantmakers also should recognize those identified by both Project Streamline and GEO’s that qualitative data are just as meaningful as quanti- research. Project Streamline’s research found that very tative data. NCRP and Bell et al.’s survey and focus few foundations actually use grant reports in a mean- group discussions with nonprofit CEOs found that ingful way: they do not inform future grant making and these two types of support ranked higher than any many are “shelved” and never read. other grantmaking practice among nonprofit leaders.

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 41 National Committee for Responsive Philanthropy

CEP’s research also found that core support of suffi- In 2004, the Urban Institute partnered with GEO to cient duration ranked highest among surveyed produce an important report authored by Francie grantees. Especially when considering long-term sus- Ostrower. Attitudes and Practices Concerning tainability of philanthropic interventions, patience is Effective Philanthropy182 remains a seminal publica- essential—results may not be measurable using any tion; it is the first large-scale survey of the U.S. foun- metrics for several years. There are, however, interim dation world’s own perceptions of its variable atti- and continuous progress indicators that can serve the tudes and practices. The report found several areas in intermediate role of demonstrating that impact is in its which foundation self-reported grantmaking practices nascent forms.181 differed greatly from actual grantmaking practices. The 2008 GEO survey discussed in this chapter was Foundation theory and practice – a disconnect that conducted as a follow-up survey to the 2004 report, impedes impact and repeated many, though not all, of the same ques- Many foundations believe that evaluation should be tions. The 2008 GEO survey thus allows for some lon- useful for informing future grantmaking decisions and gitudinal comparisons, though with cautions and for improving program design or making mid-course caveats about drawing conclusions for some areas. corrections. This is especially relevant for core and Ostrower’s analysis found that final reports were multi-year grant reporting requirements. Although the most common way that foundations monitor these types of support often require a grant report, the whether their funds were spent in accordance with form of the report is similar to an evaluation because the grant parameters. However, a survey of 300 non- a) it often looks for demonstrable organizational profit CEOs and executive directors in Ohio and New impact; b) of the longer timeframe of these types of York shows that there are insufficient resources for support; and c) of the different measures and metrics evaluation. Fully 75 percent said they do not feel they used to assess impact. Of course, to get evaluations of have enough time for evaluation, 61 percent felt they sufficient quality to produce these benefits founda- lacked the staff capacity for it, and 45 percent voiced tions need to allow nonprofits to invest in the capac- a sense of a lack of funding for evaluation.183 This sug- ity to conduct meaningful evaluation. Core support gests that grantmakers often make high demands of can be used for a variety of ways that build evaluative their grantees to demonstrate impact without provid- capacity, such as staff training in monitoring out- ing sufficient funds for their grantees to conduct for- comes or funds for external consultants who can con- mal evaluations. Foundations ought to: a) make eval- duct evaluations more rigorously without additional uations more meaningful in terms of self-evaluations upfront investments. Yet, despite the rationale for eval- and grantee evaluations; b) provide funds that allow uations of long-term unrestricted grants to serve this grantees to invest in their evaluative capacity if the purpose, studies comparing foundation theory with funder demands rigorous evaluations; and c) not try to practice find a consistent gap in this area. emulate the private sector in terms of evaluation.

YOU CAN’T MEASURE EVERYTHING THAT MATTERS

“Climate change” or global consumption of it, while non-exclu- delayed or qualitative. Can we warming is a pertinent example sive means that nobody can be really quantify the positive impact for the effectiveness paradox cre- kept from consuming the good of clean air for the future? Does ated by the “tyranny of measure- once it has been provided. But not having a metric tied to this cru- ment.” The environment is a pure how does one quantify or evalu- cial work diminish today’s invest- public good because it meets the ate the impact that environmental ment when it ensures future securi- two criteria of being non-rival and justice groups working to address ty? This is the kind of nuance of non-exclusive. Non-rival means global warming may have on the depth and breadth of work that once the “good” is provided, future generations? The impact undertaken by our vibrant non- the resource’s availability is not will take time to materialize, and profit sector that should inform all impacted by another individual’s the benefits likely will be time- evaluations.

42 This final point is crucial: much has been written median of ten hours on evaluation and reporting and about the professionalization of the nonprofit sector a median 20 hours on development-related adminis- or holding the civil society sector to metrics estab- trative requirements.186 Because the GEO and CEP lished in the private sector. Not only is there a signif- surveys analyzed grantmakers and grantees with sim- icant difference in the core reason for evaluation ilar funding parameters and found such different (profit maximization versus social impact or benefit), results, this example highlights the importance of but private sector evaluations are not immune to actively soliciting grantee feedback. problems any substantial evaluation presents. It is The 2008 GEO survey asked respondents to esti- arduous work to conduct a rigorous evaluation, and mate the amount of time a grantee spends on meet- making measurement more meaningful means learning from “failures,” A program that looks like a “failure” in the short-term may in fact which can serve as yield high returns in the long-term. This is especially so for learning opportunities for funders and grants made with an eye toward long-term sustainable change. grantees. Identifying issues or barriers as they Institutional philanthropy and the nonprofit sector’s approach arise also provides the chance for midcourse to evaluations must be informed by these issues … corrections, allowing more effective use of human and financial resources for the balance of a ing its administrative requirements along with an grant period, including a core support grant or multi- estimate of median grant from the funder. GEO mem- year funding. And a program that looks like a “failure” bers provided a median of $2,500 in grant dollars per in the short-term may in fact yield high returns in the hour of administrative requirements compared to long-term. This is especially so for grants made with $1,500 provided by non-members. As the analysts an eye toward long-term sustainable change. note, the $2,500 aggregate median grant dollars per Institutional philanthropy and the nonprofit sector’s administrative hour aligns with figures reported by approach to evaluations must be informed by these CEP in its survey of grantees that gauged more than issues, compelling grantmakers to rethink what the 100 foundations of variable types and sizes. These real purpose of evaluation is and how to make it more analyses suggest that the $2,500 figure is a relatively useful for both parties. accurate estimate of current practice trends in the sector. As with all the metrics established by NCRP in Grant dollars per hour of administrative requirement this book, current giving trends inform where exem- In its 2008 follow-up survey to Ostrower’s report, plary philanthropy begins but Philanthropy at Its Best GEO found that only 12 percent of foundations sur- must aspire to improve current trends. A more reli- veyed reported collecting data on the length of time a able way to establish reasonable administrative grantee needs to meet administrative requirements.184 benchmarks is found in GEO’s in-depth analysis of The GEO survey notes that larger foundations are these data, discussed in detail in the Setting the Bar twice as likely as smaller counterparts to have collect- for Philanthropy at Its Best section later in this chap- ed this information. Yet, there remains a significant ter. GEO’s quartile analysis shows that some exem- knowledge gap that results in foundations underesti- plary grantmakers provide more than $3,500 in mating the amount of time it takes grantees to meet grants per administrative hour.187 administrative requirements.185 Foundations with a All of the above point to the need for a paradigm median grant size of $50,000 reported that grantees shift that moves the asymmetric power relationship spent a median of eight hours for reports and evalua- between grantmakers and grantees to one of true part- tions and a median of ten hours for administrative nership and mutual trust. Fundamental to this para- requirements related to fundraising. In contrast to digm shift is ensuring that a foundation’s administra- these estimates, the Center for Effective Philanthropy’s tive requirements are reasonable and commensurate survey of grantees reported that respondents spent a with grant size.

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 43 National Committee for Responsive Philanthropy

PARTNERSHIPS Beene of the William and Flora Hewlett Foundation Grantmakers rely on their grantees to carry out their stated, “From the funder’s perspective, it gives us charitable purpose, compelling institutional philan- greater leverage for organizational change. Because thropy to reconsider seriously the nature of the rela- the grant is so highly prized, people are willing to tionship it has with its non-grantmaking partners. In a take seriously our concerns about what they’re doing true partnership, the funder that controls the supply or not doing, and I think it’s much more of a partner- side (the funds) and the grantees that identify and ship relationship. We also have a really broad sense address the demand side (social and community of the whole organization. For both of us, I think the dialogue is more realis- tic and more targeted It’s the difference between coming up with an idea yourself for and more honest.”191 how you think social outcomes should be achieved and funding people Clara Miller of the Nonprofit Finance Fund that do that versus looking for the best organizations out there notes, “Deeply ingrained that are already doing it and asking how to help them do it better. ‘best practices’ frequent- We are not at odds with the grantee. We are getting behind their plans ly add cost and reduce and the set of results that their board is focused on to begin with. management flexibility in already difficult oper- We provide the “glue money” that is hard to raise and helps you build ating conditions. We the capacity you need to grow and enhance your programs. end up hurting organizations we mean to help.” Highlighting that much —Nancy Roob, President, the Edna McConnell Clark Foundation188 capacity building is intended to strengthen needs) do not confront an insurmountable power dif- nonprofit management, she states that “much greater ferential. Rather, exemplary grantmakers engage leverage resides in improvement of funding practices, grantees in a meaningful partnership that helps both where both funders and nonprofits create broader and 192 parties advance their mission and contributes to the more powerful system change.” public good. Not only does this maximize the social There are several ways that grantees who receive benefit of philanthropy, it creates an environment of exemplary core and multi-year funding can use their trust in which problems can be identified and resolved funds to demonstrate the effectiveness of these grants. more efficiently and learning opportunities on several For example, many nonprofits will use these funds to fronts are enhanced. Recently, Arthur Schmidt, diversify their funding base by shoring up their founder of GuideStar, suggested nine strategies to income development infrastructure. This is crucially implement his proposed core doctrine of augmenting important for grantmakers to understand as it allays a institutional philanthropy’s social value. For the pur- perennial concern about creating funder dependency poses of the grantmaker-grantee relationship, one rec- if a grantee relies exclusively on a short list of founda- ommendation stands out: “shattering the tions for these grants. benefactor/supplicant condition endemic in grantmak- Nonprofit partners that receive sufficient levels of er/grantee relationships…”189 Asked by Bell et al. what flexible unrestricted funds can also exercise care and executive directors at grantee organizations liked the judgment in determining what best meets their needs to least about their jobs, one responded, “I hate the fulfill their charitable purpose. Enabled with these grant power dynamics with funders,” while another stated, dollars, they can use their discretion to invest in capac- “I hate having to prove to funders what we do all the ity building and leadership development, two increas- time. I hate the bureaucracy around money and the ingly researched and effective strategies that ensure the sort of prejudice of it, the irrationality of it and the long-term health of the U.S. democratic civic sector. competition around it. I think the system is broken.”190 Some foundations find significant value from the Capacity building and leadership development funder perspective in leveling the playing field by pro- Capacity building helps nonprofits improve their viding core support. For example, in 2002, Melanie operations, infrastructure and effectiveness. Capacity

44 building grants are more restrictive than core operat- create holistic, vertically integrated programs that ing support, but are valuable because they recognize reap rewards from the entire organization and, often, that strong organizations are needed to create impact. for the broader community.”197 If an organization receives a sufficient amount of true An important issue that emerges in GEO’s research general operating support as defined in this chapter, on leadership development is coupling it with capac- the need for capacity building and leadership devel- ity building: leadership development is a type of opment grants decreases. capacity building and capacity building is a form of Investing in capacity is not a new concept; in the leadership development.198 NCRP extends this argu- 1970s, the Harvard Business Review included an arti- ment further: providing long-term unrestricted core cle coauthored by Richard Mittenthal, president of support in the form of true general operating support the TCC group, which highlighted the extant under- and multi-year grants enables grantees to use their funding of nonprofit capacity. As he noted then, “The discretion in determining individual organizational majority of large national foundations continue to needs, be they for capacity building or leadership limit funding to special programs and short-term proj- development. Moreover, because these types of ects, creating disincentives to good management, grants have demonstrated measurable impact and dis- rather than supporting the organizational capacity play an important level of trust between the grantee building that nonprofits need.”193 and grantmaker, they reinforce the need to shift to Investing in leadership development can be an meaningful partnerships that lead to a potentially incredibly beneficial form of capacity building that higher net benefit for the entire U.S. nonprofit sector. accomplishes two objectives. First, it addresses the NCRP’s position is reinforced by the findings in Bell et staff continuity issues raised by grantees and, second, al.’s survey of nonprofit CEOs regarding what changes it advances opportunities to transition leadership to institutional grantmakers could make to facilitate sur- the next generation of civil society leaders. The Center vey respondents’ jobs and make them more effective. for Creative Leadership distinguishes between leader General operating support ranked first and multi-year development as “the expansion of a person’s capaci- funding ranked second, while investments in execu- ty to be effective in leadership roles and processes” tive leadership, specifically coaching and profession- and leadership development as “the expansion of the al development, ranked last.199 As the report notes, organization’s capacity to enact the basic leadership this does not mean that leadership development is tasks needed for collective work: setting direction, irrelevant; rather, it indicates that nonprofit CEOs creating alignment, and maintaining commitment.”194 would be more effective if they had flexible funds that Grantees that receive sufficient core support can they could use at their discretion. use these funds to enhance both leader and leadership abilities. Moreover, because shared objectives The role of the program officer – competing demands between a grantmaker and grantee discussed earli- The role of the program officer, usually the exclusive er lead to positive social impact, nurturing leader- point of contact between grantmakers and grantees, ship at the community level is yet another dimen- emerges here as crucial. Because the majority of sion to consider in the ways grantmakers provide interactions with the foundation happen through the funds to nonprofits. program officer, she or he plays a critical role in Building community-level leadership is an exam- establishing a sense of trust and partnership between ple of “collective leadership,” also known as inclu- a foundation and its grantees. A program officer can sive, relational, participatory, cooperative and shared take simple steps—such as returning phone calls in a leadership.195 Because of these characteristics, col- timely manner—that demonstrate responsiveness to lective leadership lends itself naturally to the nonprof- the grantee. Additionally, being honest with grantees it sector, which seeks to enhance the public good, about the prospects of securing funding results in and especially to groups that work in relationship immediate efficiency gains, showing respect for the with each other to provide human services and work time of overworked nonprofit leaders. Some particu- toward social change.196 “The collective leadership larly helpful program officers take the additional step model … raises questions about the utility of leader- of referring applicants to other potential funders. In ship development programs that are focused exclu- sum, the program officer’s central role in mediating sively on the executive director. Rather, the idea is to and building the important relationship with grantees

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 45 National Committee for Responsive Philanthropy

can be made more meaningful by adopting simple organizations said they lacked adequate support to mechanisms that demonstrate responsiveness. cover administrative and core operating costs. “Over Some program officers want authentic feedback half, 53.4 percent, reported the cause of their inade- from grantees, but honesty is hindered by the threat quate overhead funding was foundations desiring to that grantees feel in sharing negative experiences. This support programs and not administrative expenses.”204 highlights the importance of seeking anonymous The survey’s findings suggest that foundations may be feedback from grantees. Third-party or neutral exter- more willing to cover overhead expenses in project nal actors can often help foundations elicit the need- grants than grantees generally believe. Yet, the lack of ed anonymous feedback on their performance. core support articulated by grantees in this research as Independent consultants present funders with an well as previous NCRP interviews205 with nonprofit opportunity to get authentic feedback that is not leaders underscores why real general support grants euphemized because of the threat of lost funding. are needed to maintain a robust nonprofit sector, enabled to respond to crises and opportunities alike. Overhead in project grants – providing sufficient funds to cover indirect costs Long-term sustainability It may not always be appropriate to make a general Exemplary grantmakers recognize that true partner- support grant; some situations require project grants. ships extend beyond supporting individual organiza- In such a scenario, true partnership means ensuring tions. Instead, these funders acknowledge the impor- that grantees receive sufficient funding for overhead. tance of ensuring the long-term sustainability of the Unlike general operating support, program support or entire U.S. civil society sector. The Nonprofit Finance project support is designated to cover the expenses of Fund and Harvard University’s Hauser Center for a particular project and frequently is subject to strict Nonprofit Organizations convened a diverse group of monitoring and evaluation Although program support nonprofit stakeholders in 2007. As the title of the con- may cover some overhead costs, the funding is vening, Capital Ideas: Moving from Short-Term restricted to “carry out specific activities”200 and can- Engagement to Long-Term Sustainability, suggests, this not support general operating expenses unassociated group sought to develop recommendations to address with the project. Moreover, research demonstrates the persistent undercapitalization of the nonprofit consistently that the overhead provided in project sector, to elicit a paradigm shift in the way that fun- support grants is insufficient.201 Ensuring that an ders view their investments in their grantees and to appropriate level of overhead is included in restricted identify appropriate tools that would enhance the project funding is essential to good grantmaking. U.S. nonprofit sector as a whole. The issue of nonprof- An Urban Institute study found that restricted pro- it sustainability is a salient lens for reviewing the gram support without sufficient overhead actually financial mechanisms funders can use to increase undermines grantee capacity. Ken Wing and Mark their impact. Yet, foundation impact does not increase Hager’s research found that smaller nonprofit organi- in isolation. Rather, by providing support in the form zations with the most restricted program support had of core grants with a minimum of a two-year commit- the greatest difficulty in paying for overhead expens- ment, funders can create an enabled civil society sec- es, leading to diminished capacity and inconsistent tor that makes these organizations more effective and outcomes. As they note, “Small size combined with sustainable in the long term. As the report from the restricted funding is a double whammy that appears convening concluded, “Although business techniques to almost guarantee inadequate organizational infra- are necessary, they are not sufficient. Market disci- structure.”202 Wing and Hager advocate increasing pline is crucial in some areas, but social problems overhead support because of the positive association addressed by nonprofits exist often because markets between such grantmaking and grantee impact.203 are not working effectively. There also is an issue of Patrick Rooney et al. found that 69 percent of foun- perspective. When financial incentives are given to dations supported overhead expenses and nearly half middle- and upper-class people, it is called policy, made grants for general operating support. Their foun- when funds are given to low-income and low-wealth dation survey results are in direct contrast to the per- people, it is called subsidy. Funders should make ceptions of grantee organizations they surveyed. Fully more policies for the communities we care about.”206 two-thirds of surveyed health and education service When institutional philanthropy engages grantee

46 organizations in a relationship that reflects true part- grant does not cover real overhead costs.”209 This exem- nerships premised on trust, it enhances the long-term plary grantmaker assesses its grantees’ long-term impact sustainability of the civil society sector. GEO’s using the organization’s strategic plan, an efficient use of research presents several case studies that highlight already existing resources and an example of a reason- foundations such as the Grable Foundation, the able administrative requirement. Forbes Fund, the Bruner Foundation and the Charles Stewart Mott Foundation, among others that engage in different practices to include grantees in more sub- SETTING THE BAR FOR PHILANTHROPY stantive and meaningful ways. These foundations AT ITS BEST focus on improving grantee effectiveness by working To ensure that our Criteria for Philanthropy at Its Best are towards true partnerships. A few exemplary founda- informed by current practice, NCRP worked with the tions take partnerships to a higher level and include Foundation Center to produce a custom dataset on gen- the grantee voice in decision-making processes of the eral operating support and multi-year funding. The foundation. Others include nonprofit partners in the dataset reported disaggregated foundation giving by grants process while some include constituent repre- types of support for a three-year period from circa 2004- sentatives on the board of trustees. NCRP supports all 2006. NCRP used the three-year mean to avoid the these exemplary practices; many of them are potential influence of high or low outliers that can some- addressed more extensively in Chapter 3 of this book. times be generated in a single year by unusual grants.. The need for more core support grant dollars of The resulting data present a reasonably reliable picture sufficient duration is even more pronounced when of the percentage of grants or grant dollars each founda- looking at the issue of partnerships and sustainability. tion gave based on the two types of support NCRP iden- Renowned former Stanford business school professor tified as associated with positive investments in the and current-day business management consultant Jim health, growth and effectiveness of its grantee partners. Collins concisely stated the importance of general There were 809 large foundations in Foundation operating support: “Restricted giving misses a funda- Center’s database210 with sufficient data to be includ- mental point: To make the greatest impact on society ed in NCRP’s analysis of types of support. While there requires first and foremost a great organization, not a now are approximately 1,200 foundations in the data- single great program.”207 A grantmaker can demon- base, some foundations could not be included in the strate its trust in its grantees by disengaging from the analysis because they did not provide data for all day-to-day operations of the organization, knowing three years. Total average grant dollars awarded by that long-term accountability is ensured. Gara LaMarche, president and CEO of the Atlantic GRAPH 2.1 AGGREGATED GENERAL OPERATING Philanthropies, highlights the importance of general SUPPORT AS A PERCENT OF TOTAL GIVING, support and multi-year funding as a sign of trust, stat- 2003–2006 ing that “trusting [grantees], in a supportive relationship, to set their own course and make their own 19 Percent decisions about programmatic priorities … is best done with general support that gives organizations the flexibility they need and multi-year grants that pro- 18 vide room to plan and give some relief from the end- less cycle of fundraising and the paperwork that most foundations seem to generate.”208 17 In 2005, the New Hampshire Charitable Foundation revised its grantmaking guidelines to include multi-year and general operating support grants; it also increased the size of individual grants. As noted by Jennifer Hopkins, 16 director of programs, “It frees [grantees] from crafting a project to fit our guidelines … and it helps with the problem of being grant-rich but cash-poor because every grant 15 is restricted to a specific project or, even worse, every 2003 2004 2005 2006

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 47 National Committee for Responsive Philanthropy

these 809 grantmakers was $14,926,350,872 for the GRAPH 2.2 PERCENT OF FOUNDATIONS time period analyzed.211 MEETING NCRP’S CRITERIA FOR GENERAL Of the 809 foundations in NCRP’s total sample, 617 OPERATING SUPPORT foundations provided at least some grant dollars for general operating support.212 In the aggregate, 16.2 percent of grant dollars was provided for general support. To set ■ Foundations 15.5% a standard metric for Philanthropy at Its Best, NCRP Designating 50% or More of Grant Dollars examined individual foundation grantmaking. The 50 for General Operating foundations that provided the highest proportion of their Support grant dollars for general operating support gave more than 90 percent of their grant dollars over all three years ■ Foundations for general support. These grantmakers comprise just Designating Less Than over 6 percent (6.18) of the total NCRP sample. Within 50% of Grant Dollars 84.5% for General Operating this sub-sample, 30 foundations provided fully 100 per- Support cent of their grant dollars for this type of support. The median was fairly disappointing, at 13 percent of all grant dollars for general operating support. GRAPH 2.3 PERCENT OF FOUNDATIONS MEETING These findings are in keeping with aggregate statis- NCRP’S CRITERIA FOR MULTI-YEAR FUNDING tics on core support compiled by the Foundation Center, which indicate that general operating support has declined continuously since 2003: it comprised 16.3% 18.0 percent of grant dollars awarded a percentage of overall giving in that year, 17.4 percent in 2004, 16.9 ■ Foundations percent in 2005 and 16 percent in 2006.213 Designating 50% or More of Grant Dollars Given the background on aggregate general oper- for Multi-Year Funding ating support and the median of the NCRP sample, it is unsurprising that there was an exceptionally large ■ Foundations group of foundations providing disappointingly low Designating Less Than levels of operating support. The 370 foundations that 50% of Grant Dollars 83.7% for Multi-Year Funding account for nearly 46 percent (45.74) of the total NCRP sample provided less than 20 percent of their grant dollars for general operating support, with 268 of those foundations, comprising more than 33 per- TABLE 2.3 MEDIAN GRANT DOLLARS AWARDED BY cent (33.13) of the sample providing less than 10 per- RESPONDENTS PER ADMINISTRATIVE HOUR217 cent of their grant dollars for these purposes. Based on Funder Estimates of both Median Grant Size Leading the field, 125 foundations or about 15.5 per- and Hours a Typical Grantee Spends on Meeting their cent of the total NCRP sample provided at least 50 per- Administrative Requirements cent of their grant dollars for general operating support. This is the benchmark for Philanthropy at Its Best. A list of all 125 foundations that currently meet or exceed this PERCENTILES ALL RESPONDENTS ALL RESPONDENTS (N=577) TRIMMED* (N=549) benchmark can be found in the data appendix. For multi-year grants, 483 foundations of our 809 10th $284 $333 foundation sample (59.7 percent of the total sample) 25th $625 $647 provided at least one multi-year grant during the 50th $1,667 $1,667 three-year time period. This number is disturbing con- 75th $3,750 $3,586 sidering the stated constraints on smaller foundations’ 90th $9,148 $7,500 ability to provide this type of support noted in this chapter. Because the Foundation Center tracks only *Both ends of the distribution were trimmed by 2.5% (the extreme larger foundations, if smaller foundations were 5% of the data were discarded). included in the sample, the numbers would be even

48 lower. Interestingly, these findings align with self- we are not able to report the names of the field leaders reported data from the 2008 GEO survey, which for this metric. Still, the quartile analysis of GEO’s 2008 found that 60 percent of foundations, regardless of data in Table 2.2 shows the top 25 percent of its sample asset size, provided multi-year grants sometimes, reported awarding more than $3,500 per administrative often or always.214 For foundations that made any hour, providing a helpful cut point to draw a possible multi-year grants, the median when measuring multi- measure for exemplary philanthropy. year grant dollars as a proportion of overall grantmaking was just below 34 percent (33.7). CONCLUSION Leading the field, 132 foundations or 16.3 percent All foundations should focus on the types of support of the of the total NCRP sample provided 50 percent they provide and ensure that a significant proportion or more of their grant dollars as multi-year grants. This of grant dollars is allocated to general operating and is the benchmark for Philanthropy at Its Best.215 A list multi-year support. Complementing these types of of all 132 foundations that currently meet or exceed support with minimizing the inefficiencies in current this benchmark can be found in the data appendix. administrative requirements offers great potential to Encouragingly, NCRP identified 38 exceptional augment the impact and social benefit of institutional field leaders; each of these foundations provided more philanthropy. Moreover, as this chapter demonstrated, than 75 percent of its grant dollars as multi-year grants. creating a more level playing field by repositioning In contrast, 160 foundations provided less than 25 per- the power dynamics between foundations and cent of grant dollars as multi-year grants. Additionally, grantees offers significant potential for sector-wide 326 foundations (more than 40 percent of the total improvements in the U.S. civil society sector. sample) provided no multi-year grants whatsoever. Fundamental components of engagement founded on The data available regarding administrative require- the values of true partnership include: trusting non- ments are less robust but some longitudinal compar- profit grantees, learning to be comfortable with a isons are possible between the GEO’s Grantmaking degree of uncertainty, minimizing the power differen- Practices that Support Grantee Success: Survey Report tial by engaging grantees as true partners, and ensur- and the 2004 Urban and GEO report, Attitudes and ing that grantees are sufficiently enabled to carry out Practices Concerning Effective Philanthropy. In their the work funded by a grantmaker. Reasonable admin- 2008 follow-up analysis, GEO used a combination of istrative requirements, particularly in terms of appli- foundations’ own estimates of the time it would take a cation and reporting, would enhance greatly the grantee to fulfill application and reporting requirements impact of institutional grantmaking from both the fun- with the same foundations’ self-reported median grant der and grantee side. A significant body of research size to produce a measure of administrative burden; it is demonstrates that there are many already-existing the median grant dollars awarded by foundations per tools for foundations to use to change the dynamics administrative hour. In the aggregate, all foundations on which their relationships with grantees are based. granted a median $1,667 per hour of administrative Based on the analysis presented in this chapter, work but GEO’s analysis found important differences in NCRP advocates that all institutional grantmakers analyzing the median amounts granted per administra- engage their grantees as true partners by providing suf- tive hour by foundation type and grant size. For exam- ficient general operating and multi-year support, ple, when median grant size was $50,000, foundations investments that grantees can use to bolster infrastruc- reported providing $2,639 per administrative hour com- ture to ensure long-term viability of the civil society pared to the full 820 foundation sample.216 sector. By ensuring that application and reporting NCRP is not establishing a metric for dollars granted requirements are commensurate with grant size, both per administrative hour at this time. There are insufficient grantmakers and grantees will make more effective use publicly-available data, especially longitudinal studies, of their time and increase their impact on the commu- to measure true partnerships between nonprofits and nities they serve. As more foundations begin to meas- grantees. This is an especially challenging concept to ure up to the fair and reasonable benchmarks estab- quantify and establish a corresponding metric. At a lished under this criterion, both grantmakers and future date, NCRP and partners may develop survey grantees will see increased impact and effectiveness, mechanisms to capture this important element of good and the vibrant civil society sector of the United States grantmaking. Because GEO’s survey was anonymous, will better-serve the public’s most pressing needs.

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 49 National Committee for Responsive Philanthropy

Criterion II: Effectiveness

A grantmaker practicing Philanthropy at Its Best serves the public good by investing in the health, growth and effectiveness of its nonprofit partners.

a) Provides at least 50 percent of its grant dollars for general operating support

b) Provides at least 50 percent of its grant dollars as multi-year grants

c) Ensures that the time to apply for and report on the grant is commensurate with grant size

> Which parts of the chapter did you like the most? > Do we think our application and reporting require- Why? ments are burdensome to nonprofits? How do we know how long it takes grantees to apply for and > Which parts did you like the least? Why? report on a grant from us?

> Is it important to invest in the health, growth and > Do we think our requirements are reasonable con- effectiveness of our grantees? Why or why not? Have sidering the size grants we offer? Do we want to we ever held explicit discussions related to this? consider altering anything about grant size or requirements? Why or why not? > In what ways do you think our foundation currently invests in the health, growth, and effectiveness > Considering the mission of our foundation, are we of our grantees? Are there other examples from doing everything we can to promote effectiveness our past? of our grantees?

> What percentage of our foundation’s grant dollars > What else from this chapter should inform our cur- do we estimate are given as general operating sup- rent grantmaking priorities? port? As multi-year grants? How did we establish those percentages? Do they satisfy us? Why or > If we want to make any changes based on this dis- why not? cussion, what will need to happen in order to make those changes? What are the next steps? > Considering the mission of our foundation, are there ways we might increase our general operating support and our multi-year grants and still be effective in achieving our goals?

50 NOTES FOR CHAPTER II: EFFECTIVENESS

127. Grantmakers for Effective Organizations. “Investing in 144. Ibid. Leadership: Young Leaders ‘On the Verge,’” IMPACT newslet- 145. Paul Brest, Op. Cit., p. 44. ter, (October 2006), 2, http://www.onthemovebayarea.org/ 146. The California Wellness Foundation. Core Operating Support: files/GEO%20Article%20on%20OTV.pdf. Annual Report 1999 (Woodland Hills, CA: The California 128. Quoted in Grantmakers for Effective Organizations. Imagine, Wellness Foundation, 1999). Involve, Implement: Transforming Grantmaker Practices for 147. Gary L. Yates. “Good to the Core,” Foundation News and Improved Nonprofit Results (Washington, D.C.: Grantmakers Commentary (July/August 2001). for Effective Organizations, January 2008), 38. 148. Grantmakers for Effective Organizations, July 2007, Op. Cit., p. 7. 129. Kevin Bolduc, Phil Buchanan and Judy Huang. Listening to 149. Buechel and Handy. 2007. Op. Cit. p. 11. The context of these Grantees: What Nonprofits Value in Their Foundation Funders metrics was executive leadership development but easily can (Cambridge, MA: The Center for Effective Philanthropy, 2004), 3. be extrapolated to core support grants as well. 130. Council on Foundations. “At Issue: Project vs. Operating 150. Adapted from Council on Foundations 2002, Op. Cit. p: 4-5. Support – Which is the Better Strategy?” Council on 151. Cohen, 2007, Op. Cit. p. 12. Foundations Board Briefing: Type of Funding, December, 152. Cohen 2007, Op. Cit., p. 13. 2002, http://www.cof.org/files/Documents/Governing_Boards/ 153. Mark Hager et al. “Paying for Not Paying for Overhead,” BBProjectOperating.PDF. Foundation News & Commentary 46 (2005); Cohen, Op. Cit.; 131. See, for example, many articles written by NCRP cofounder Bell et al., Op. cit. and current board member Pablo Eisenberg on the rationale 154. Blue Shield of California Foundation. Strengthening the Safety for increasing grant dollars allocated to unrestricted general Net: Core Support for Community Clinics (San Francisco, CA: operating support. See also Table I for recent NCRP work on Blue Shield of California Foundation, 2007), 3. core support. http://bscaf.com/assets/files/reports/Core_Support_Evaluation 132. General operating support often is used interchangeably with _2007.pdf. the terms core support, core operating support, general sup- 155. Mark Kramer et al. From Insight to Action: New Directions in port and operating support. Foundation Evaluation (Boston, MA: FSG Social Impact 133. Grantmakers for Effective Organizations. General Operating Advisors, 2007), 13. Support: GEO Action Guide (Washington, D.C.: Grantmakers 156. Kristin A. Grønbjerg and Laney Cheney. Indiana Nonprofit for Effective Organizations, July 2007), 31. Capacity Survey Series Report #1: Indiana Capacity 134. Ibid., p. 19. Emphasis added. Assessment: Indiana Charities, 2007 (Indianapolis, IN: School 135. Paul Brest. “Smart Money: General Operating Grants Can Be of Public and Environmental Affairs at Indiana University, May Strategic – for Nonprofits and Foundations,” Stanford Social 15, 2007); Grantmakers for Effective Organizations. Listen, Innovation Review (Winter 2003): 49. Learn, Lead: Grantmaker practices that Support Nonprofit 136. Kathleen W. Buechel and Esther Handy. The Road Less Results, (Washington, D.C.: Grantmakers for Effective Traveled: Funders’ Advice on the Path to Nonprofit Organizations, December 2006); Grantmakers for Effective Sustainability (working paper no. 40, Harvard University, The Organizations, January 2008, Op. Cit.; Mark Kramer et al., Hauser Center for Nonprofit Organizations, July, 2007), 8. Op. Cit. 137. Jeanne Bell, Richard Moyers and Timothy Wolfred. Daring to 157. Judy Huang, Phil Buchanan and Ellie Buteau. In Search of Lead: A National Study of Nonprofit Executive Leadership Impact: Practices and Perceptions in Foundations’ Provision of (Washington, D.C.: CompassPoint Nonprofit Services and The Program and Operating Grants to Nonprofits (Cambridge, Eugene and Agnes E. Meyer Foundation, 2006), 33. MA: Center for Effective Philanthropy, December 2006). 138. Grantmakers for Effective Organizations. January 2008, Op. 158. Ibid., p. 15. Cit., p. 4. 159. Cohen, Op. Cit. p.10; Center for Effective Philanthropy 2004, 139. Michael E. Porter and Mark Kramer. “Philanthropy’s New Op. Cit. p. 15; Grantmakers for Effective Organizations, July Agenda: Creating Value,” Harvard Business Review 77 2007, Op. Cit. p. 1. (November-December 1999): 124. 160. Quoted in Cohen 2007, Op. Cit. p 10-11. http://www.ncbf.org/Philanthropys_New_Agenda.pdf. 161. NCRP acknowledges that many smaller foundations find it 140. Grantmakers for Effective Organizations. General Operating challenging to make multi-year commitments but encourages Support vol. 2: Assessing the Impact (Washington, D.C.: them to consider real multi-year funding. Grantmakers for Effective Organizations, 2008), 5. Emphasis 162. Bell et al., Op. Cit. added. The issue of making evaluations more meaningful and 163. Cohen 2007, Op. Cit.; Grantmakers for Effective looking at alternative metrics is discussed in detail later in this Organizations, December 2006, Op. Cit. chapter under administrative requirements. 164. Kevin Bolduc, Phil Buchanan and Judy Huang. Listening to 141. Grantmakers for Effective Organizations, July 2007, Op. Cit., Grantees: What Nonprofits Value in their Foundation Funders p. 19. (Cambridge, MA: Center for Effective Philanthropy, 2004). 142. Paul Brest., 2004, Op. Cit., p. 50. 165. Bell et al., Op. Cit.; Huang et al., Op. Cit. 143. Quoted in Council on Foundations 2002 Op. Cit. p. 7. 166. Cohen, Op. Cit. p. 11. Emphasis added.

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 51 National Committee for Responsive Philanthropy

167. Grantmakers for Effective Organizations, Grantmaking 187. Internal GEO communication shared with NCRP. Practices that Support Grantee Success: Survey Report 188. Quoted in Grantmakers for Effective Organizations January (Washington, D.C.: Grantmakers for Effective Organizations, 2008, Op. Cit., p. 22. October 2008). 189. Arthur “Buzz” Schmidt. “Escaping the Perpetuity Mindset,” 168. Grantmakers for Effective Organizations. Is Grantmaking The Nonprofit Quarterly (Fall 2008). Getting Smarter: A National Study of Philanthropic Practice— 190. Bell et al., Op. Cit., p. 13. Data Highlights (Washington, D.C.: Grantmakers for Effective 191. Quoted in Rick Cohen. “Cutting to the Core,” Responsive Organizations, 2008), 11. Philanthropy (Fall 2002). 169. Adapted from Ibid. the p-value for this statistic was <0.001 192. Clara Miller. “Risk Minus Cash Equals Crisis: The Flap about meaning that the probability that these findings do not reflect General Operating Support,” in State of Philanthropy 2004 reality based on self-reported multi-year funding is less than 1 (Washington, D.C.: The National Committee for Responsive in 1,000. Philanthropy, 2004), 122. 170. Ibid., p. 10. 193. Quoted in Paul Connolly. Building to Last: A Grantmaker’s 171. Ibid., p. 13. Guide to Strengthening Nonprofit Organizations (New York, 172. Jessica Bearman. Drowning in Paperwork, Distracted from NY: The TCC Group, March 2001). Purpose: Challenges and Opportunities in Grant Application 194. Ellen Van Velsor and Cynthia D. McCauley. “Our View of and Reporting (Washington, D.C.: Project Streamline, 2008), 5. Leadership Development,” in The Center for Creative 173. Kathleen W. Buechel, Elizabeth K. Keating and Clara Miller. Leadership Handbook of Leadership Development, 2nd edi- Capital Ideas: Moving from Short-term engagement to Long- tion, ed. Ellen Van Velsor and Cynthia D. McCauley, (San Term Sustainability (Cambridge, MA: Hauser Center for Francisco, CA: Jossey-Bass, 2004); cited in Betsy Hubbard, Nonprofit Organizations, Harvard University, and Nonprofit Investing in Leadership, Vol. I: A Grantmaker’s Framework for Finance Fund, 2007). Understanding Nonprofit Leadership Development, 174. Ibid. (Washington, D.C.: Grantmakers for Effective Organizations, 175. Bearman, Op. Cit.; NCRP confidential discussions with fun- 2005), 13. ders and grantees. 195. K.A. Allen et al. Leadership in the Twenty-First Century: 176. Grantmakers for Effective Organizations, Grant Makers Rethinking Leadership, (College Park, MD: Academy of Network, Association of Fundraising Professionals, the Leadership Press, 1998); cited in Hubbard, Op. Cit. Association of Small Foundations, the Council on 196. Hubbard, Op. Cit. Foundations, the Forum of Regional Associations of 197. Kathleen P. Enright. Investing in Leadership, volume 2: Grantmakers and The Foundation Center are the other mem- Inspiration and Ideas from Philanthropy’s Latest Frontier, bers of the collaborative. NOTE: the National Council of (Washington, D.C.: Grantmakers for Effective Organizations, Nonprofits was called the National Council of Nonprofit February 2006), 15. Associations at the time that the Project Streamline report was 198. Hubbard, Op. Cit; Enright, Op. Cit. published. 199. Bell et al., Op. Cit., p. 14. 177. The CEP data are available online at 200. Brest Op. Cit. www.projectstreamline.org. 201. Grantmakers for Effective Organizations October 2008, Op. 178. Bearman, Op. Cit., p. 19. Cit.; Grantmakers for Effective Organizations 2008, Op. Cit.; 179. Alana Conner Snibbe. “Drowning in Data,” Stanford Social Rooney and Frederick Op. Cit.; Bell et al. Op. Cit.; Bearman Innovation Review, 4 (Fall 2006): 40. Op. Cit.; Please see Pablo Eisenberg’s and NCRP’s extensive 180. Grantmakers for Effective Organizations 2008, Op. Cit., p. 25. writings on general operating support. 181. Please see NCRP’s series of Grantmaking for Community 202. Mark Hager et al. Getting What We Pay For: Low Overhead Impact Project reports for a comprehensive list of interim Limits Nonprofit Effectiveness – Nonprofit Overhead Cost progress indicators. http://www.ncrp.org/campaigns-research- Project Brief No. 3 (Washington, D.C.: Urban Institute & policy/communities/gcip. Center on Philanthropy Indiana University, August 1, 2004). 182. Francie Ostrower. Attitudes and Practices Concerning 203. Ibid. Effective Philanthropy: Survey Report (Washington, D.C.: the 204. Rooney and Frederick, Op. Cit., p. 13. Urban Institute, September 2004). 205. Rick Cohen. A Call to Action: Organizing to Increase the 183. J.G. Carman and J.L. Millensen. “Nonprofit Program Effectiveness and Impact of Foundation Grantmaking Evaluation: Organizational Challenges and Resource Needs,” (Washington, D.C.: National Committee for Responsive The Journal of Volunteer Administration, 23 (2005). Cited in Philanthropy, 2007). Snibbe, Op. Cit. 206. Kathleen W. Buechel, Elizabeth K. Keating and Clara Miller. 184. Grantmakers for Effective Organizations 2008, Op. Cit., p. 4. Capital Ideas: Moving from Short-Term Engagement to Long- 185. Ibid., p. 35. Term Sustainability (Cambridge, MA: Hauser Center for 186. Center for Effective Philanthropy. Analysis of Key Predictors of Nonprofit Organizations, Harvard University, and Nonprofit Grantee Ratings of Process Helpfulness and Time Spent (pre- Finance Fund, 2007), 27. pared for Project Streamline). Based on data from over 14,000 207. Jim Collins. Good to Great and the Social Sectors: A grantees of large foundations (a median grant size of Monograph to Accompany Good to Great (New York, NY: $50,000.) Grantmakers for Effective Organizations October Harper Collins, November 30, 2005) 24. 2008, Op. Cit. p. v.

52 208. Gara LaMarche. “When Foundations Should Lead – and When They Should Get Out of the Way,” in Power in Policy: A Funder’s Guide to Advocacy and Civic Participation, ed. David F. Arons (Saint Paul, MN: Fieldstone Alliance, 2007), 34. 209. Grantmakers for Effective Organization July 2007, Op. Cit., p. 36. 210. The search set is based on the Foundation Center’s grants sample database, which includes all of the grants of $10,000 or more awarded to organizations by a sample of 1,172 larger foundations for circa 2004, 1,154 for circa 2005, and 1,263 for circa 2006. For community foundations, only discretionary grants are included. Grants to individuals are not included in the file. 211. This figure is the denominator used in NCRP’s calculations; if analyzed within giving sub-samples, these figures would be higher and likely overstate the current giving trends. Using the full samples average total giving provides a more comprehensive framework for analyzing the different types of grants. 212. The Foundation Center’s grants classification system does not differentiate between unrestricted core support and negotiated core support; both are included in the general operating support category. 213. The Foundation Center provides online access to highlights in annual giving trends on its website and in its Foundation Giving Trends series available online at www.foundationcen- ter.org. These data are only on the proportion of grant dollars classified for general operating support, not general support, which includes other types of giving such as income management. 214. Grantmakers for Effective Organizations 2008, Op. Cit., p. 3. 215. The two metrics described in this criterion are not additive. For example, a grant that is both multi-year and for general support counts towards meeting both measures. 216. Grantmakers for Effective Organizations 2008, Op. Cit., p. 22. 217. Internal GEO communication shared with NCRP.

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 53

Chapter III: Ethics

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 55 National Committee for Responsive Philanthropy

Criterion III: Ethics — At A Glance

A grantmaker practicing Philanthropy at Its Best serves the public good by demonstrating accountability and transparency to the public, its grantees and constituents.

a) Maintains an engaged board of at least five people who include among them a diversity of perspectives—including of the communities it serves—and who serve without compensation

b) Maintains policies and practices that support ethical behavior

c) Discloses information freely

> An exemplary grantmaking institution operates > One of the most important things a grantmak- as an ethical steward of the partly public dollars ing institution can do to build public trust in its with which it is entrusted. Unfortunately, too operations is to maintain appropriate policies many individuals continue to abuse philanthro- and practices that make the possibility of abuse py for personal gain. As the institution’s ulti- less likely and demonstrate substantive mate decision-making authority, trustees have a accountability. These policies include, but are legal and moral obligation to ensure that their not limited to: a) maintaining appropriate con- organizations are functioning in ways that flict of interest and whistleblower protection ensure ethical stewardship. policies; b) establishing reasonable, not excessive, executive compensation; and c) subscrib- > Board composition is critically important to ethical ing to any of a number of available codes for operations. Research indicates that diverse groups ethical conduct and good governance. make better decisions, and that a minimum of five people is needed to achieve a plurality of perspec- > Transparency also is integral to preventing tives. Many family foundations and other grant- abuses and enhancing meaningful accountabil- makers have seen tangible value from including ity. A grantmaker practicing Philanthropy at Its the grantee perspective on their boards. Best should share freely extensive information regarding its grants, governance, management, > As a rule, trustees should serve without com- investments and operations. pensation. Research does not support the con- tention that compensated boards serve their > Because data on the issues covered by the institutions better. Moreover, every dollar spent ethics criterion are neither centralized nor eas- on trustee compensation is one that could have ily available, we cannot say what proportion of gone toward achieving the mission of the foun- the nation’s grantmakers meet or exceed these dation. The only exceptions should be if the benchmarks. But many exemplary grantmakers CEO also is a trustee or if the foundation com- operate in ways that meet or exceed the meas- pensates lower-income board members who ures for this criterion. otherwise could not afford to serve.

56 Chapter III: Ethics

Foundation board positions are no longer ceremonial. Board members must be fully engaged in the oversight of their foundations’ operations and must actively seek to improve their skills. It is essential that foundations do everything they can to guard against both real and perceived abuses.

—Emmett D. Carson, President and CEO Silicon Valley Community Foundation218

rivate foundations and other institutional grant- In 1975, the total number of foundations in the Pmakers play a vital role in sustaining the U.S. civil United States was 21,877. The most recent data avail- society sector, and exemplary foundations operate able show a dramatic increase since then, with a sig- ethically and with great integrity. Unfortunately, too nificant surge in the type, number and assets of foun- many grantmakers do not take the necessary steps to dations. Currently, there are 72,477 grantmaking demonstrate that they are using their tax subsidies to institutions, including independent, community, cor- further their charitable purpose. It is incumbent on a porate and operating foundations. According to the foundation to demonstrate accountability and trans- Foundation Center, in 2007 the total assets of these parency in its operations so that regulators and the foundations grew to $670 billion, the highest level yet public know that all grantmaking institutions are act- recorded.220 Although the current financial crisis has ing as ethical stewards of the tax-subsidized dollars reduced that figure significantly, foundations continue with which they are entrusted. As the Internal to control vast wealth. Because institutional grant- Revenue Service’s Governance and Related Topics makers largely are exempt from taxation, the govern- guidelines for nonprofit organizations state: “The pub- ment foregoes substantial revenue that could be used lic expects a charity to abide by ethical standards that to expand social safety net programs or provide for promote the public good. The organization’s govern- the common good in other ways. Steven T. Miller, ing body bears the ultimate responsibility for setting commissioner of the Tax Exempt and Government ethical standards and ensuring they permeate the Entities division of the Internal Revenue Service (IRS), organization and inform its practices.”219 As the ulti- underscored the purpose of the tax subsidy afforded mate decision-making body of a grantmaking institu- to charitable organizations when he asserted that tion, it is incumbent on a foundation board in partic- “every charity should make responsible and appropri- ular to ensure that the institution it oversees complies ate use of its resources to achieve its charitable pur- with regulatory and legal requirements, public policy poses. That is what the tax-subsidy is for.”221 and generally-accepted ethical practices. Moreover, researchers estimate that “at least 45 per-

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 57 National Committee for Responsive Philanthropy

cent of the $500 billion that foundations hold in their Institutional philanthropy historically has shown a coffers belong to the American public … ‘When a foun- preference for self-regulation over government regu- dation is created today, the burden of lost tax revenue is lation, with foundation trade associations and affinity borne by citizens today in the form of a tax expendi- groups frequently voicing collective opposition to any ture,’ with the promise that it will be paid out in the increase in governmental scrutiny. Even something future.”222 This partially public nature of foundation dol- seemingly as innocuous as mandated information dis- lars means that the public has a vested interest and a closure is viewed with alarm, invoking unsubstantiat- right to expect ethical behavior and a reasonable level ed rhetoric about the “slippery slope” that leads to increased regulation. But disclosure regula- Accountability and transparency have become meaningless tion would not infringe on a foundation’s inde- buzz words despite some foundations taking steps toward pendence or decision- making; it simply would enhancing public trust in philanthropy by voluntarily disclosing provide grantmakers, policymakers and the relevant information that demonstrates they are meeting their public with more robust information about the charitable purpose and furthering their missions. sector. Given that government regulation of philanthropy currently of disclosure about foundation operations. This also is in is so minimal, rigorous self-regulation is all the more keeping with the IRS’s statement that charitable organi- important; but without substantive self-regulation fur- zations must be “organized and operated exclusively ther governmental regulation of foundations is likely. for one or more exempt purposes.”223 Organizations Sharing relevant information provides the public with must ensure that any earnings do not benefit any private important information from which it is free to draw its individual or shareholder, and do not operate for the own conclusions; vigorous self-regulation is possible benefit of any private interests, including those of the only with the right tools. founder, her or his family, its shareholders or any indi- Independent research and congressional testimony viduals controlled by these interests.224 by IRS officials demonstrate that the IRS’s tax exempt Viewed from a strictly legal perspective, some con- organizations division is extremely shorthanded and tend that foundation dollars are private dollars and underfunded. State attorneys general lack the capaci- ought not to be subject to public scrutiny. Yet, seen ty to analyze voluminous foundation reports submit- through a public policy lens, foundations, their ted to them each year with limited financial and grantees and the public are partners in pursuit of the human resources. Fully 36 states had one or fewer common good. Coupled with the exempt organiza- full-time equivalent attorneys dedicated to nonprofit tion’s legal obligation to demonstrate that it serves the oversight, with 17 states lacking any such legal capac- public good and not private interests, as stated above, ity whatsoever.225 In other words, oversight capacity this is a compelling and justifiable rationale to expect has not kept pace with the explosive growth among institutional grantmakers to behave as ethical stew- foundations. The quasi-public nature of foundation ards of the partly public monies with which they are assets makes it incumbent on foundations to act ethi- entrusted. Accountability and transparency have cally and prevent philanthropic abuses. become meaningless buzz words despite some foun- The information that private foundations must dis- dations taking steps toward enhancing public trust in close publicly to maintain their tax-exempt status is philanthropy by voluntarily disclosing relevant infor- limited to what is available on the IRS’s tax forms for mation that demonstrates they are meeting their char- these organizations, the 990 PF form,226 and annual itable purpose and furthering their missions. Too few reports provided on a voluntary and variable basis. foundations engage in such disclosure, limiting the Further, media reports indicate that many individuals information the public needs to know that its tax dol- continue to abuse philanthropy for personal gain. lars are being used appropriately. Examples range from political cronyism to extrava-

58 gant compensation and retirement packages for foun- In 2001, rampant scandals reported among corpo- dation trustees and executives. Coupled with the lim- rations, government agencies and churches led to ited publicly available data on foundation operations, increased public scrutiny and demands for more the public trust in institutional grantmakers has dimin- investigations into foundations and other charitable ished and must be rebuilt. These are compelling rea- organizations. The public trust in institutional philan- sons for foundations to take robust voluntary steps thropy diminished significantly following a series of that demonstrate high levels of transparency and investigative media reports by the Washington Post accountability. and Boston Globe in 2003. The newspapers ran in- There are three things that a foundation can do to depth articles, demonstrating high levels of financial make ethical operation more likely: abuses, particularly among foundation trustees and executives. Financial scandals at Enron, Tyco 1. Maintain an engaged board with a minimum of International, Adelphia and other corporations led to five trustees that brings a plurality of perspectives the bipartisan Sarbanes-Oxley Act of 2002. The act to its decision-making; established uniform standards for all U.S. public com- 2. Maintain policies and practices in support of ethi- pany boards and management because of the impact cal behavior; and, of the drop in private sector shares on publicly traded 3. Disclose significant amounts of information to the securities. In light of the philanthropic abuses docu- public. mented by the media, policymakers and regulators began to consider the applicability of similar provi- As more foundations take meaningful steps in this sions to nonprofit organizations to ensure compliance direction, the public trust will be rebuilt and grant- with the law and justify the lost tax revenue from the makers will maximize the social benefit of their con- charitable exemption. tributions to the American civil society sector. State attorneys general and members of Congress with oversight of federal tax laws raised concerns Recent regulatory and policy history of philanthropic about their capacity to ensure that charitable organi- accountability and sector reform zations were complying with the law, leading to Issues of foundation accountability and regulation diminished oversight. In 2004, the Senate Finance date back to concerns that the early philanthropists Committee chaired by Sen. Charles Grassley (R-Iowa) such as Andrew Carnegie and John D. Rockefeller began a series of hearings to determine the extent of were using the charitable tax subsidy to exert undue the problem. Among the myriad testimonies present- influence on many dimensions of the public sphere ed to the committee, IRS authorities admitted that the through their giving.227 Government regulation nonprofit sector long had been treated as a “compli- declined in the early 1980s, following an IRS “exam- ant area” by tax regulators. Because of limited finan- ination study,” which concluded that private founda- cial and human resources, the agency audited less tions were complying with the dictates of their tax than half a percent of the roughly one million charita- exemption status. Faced with financial and human ble organizations it is supposed to oversee. This was resource deficiencies, the total number of audits on in keeping with prior testimony from Marcus Owens, private foundations decreased dramatically through- former director of the IRS’s Exempt Organization out the 1990s, leaving the sector with markedly less Division during the Clinton Administration, who stat- oversight and making it increasingly reliant on self- ed that the IRS could access only 20 percent of the regulation.228 information found on 990 PF forms, and with a budg- The bull market period of the 1990s saw a tremen- et of $59 million in 1999, the exempt division was dous surge in the number of foundations and their incapable of conducting more than 115 audits of the total assets. As The Robert Wood Johnson Foundation more than 60,000 foundations under its oversight in states, “although this boom … suggests that founda- the same fiscal year.230 Much of this depletion of staff tions are thriving as never before, it is precisely this and resources at the IRS came in the wake of Sen. rise in numbers, influence and complexity, coupled William Roth’s (R-Del.) testimony on IRS abuses in with reductions in government spending for social 1997, which led to a massive reorganization of the services that leaves them vulnerable to claims that agency and Congress maintaining tight control over they are ‘unaccountable.’”229 the IRS budget.

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 59 National Committee for Responsive Philanthropy

Representatives of the National Association of make recommendations to strengthen accountability State Charity Officials (NASCO) also underscored the and transparency in the nonprofit sector. In response, paucity of funds available to support charitable the Independent Sector convened a coalition of non- enforcement cases. Mark Pacella, then president of profit experts and the Panel on the Nonprofit Sector was NASCO, testified that financial resources were created to address concerns articulated by Congress, severely overextended and NASCO offices had insuf- nonprofits, the public, and federal and state oversight ficient personnel to conduct investigations of charita- agencies about the illegal and unethical practices of ble organizations. Pacella noted that 990 PF forms fre- some charitable organizations. The panel produced quently were submitted by organizations with inaccu- final and supplemental reports, including recommenda- racies and “filed one or more years after the fiscal tions for sector-wide reform, in 2005 and 2006. period for which they relate has passed, making it The Senate Finance Committee eventually merged doubly difficult for regulators to … pursue enforce- these recommendations into legislation passed as the ment actions in a timely manner.”231 William Pension Protection Act of 2006. Provisions of the 2006 Josephson, assistant attorney general for New York act subjected charitable organizations to more rigorous State, offered similar testimony, stating that although reporting requirements, authorized the IRS to revoke the fully one-tenth of all 990 PF forms that his office tax-exempt status of any nonprofit or foundation that reviewed raised red flags, resource deficiency and a failed to file returns within three years, and established void of legal expertise resulted in these cases often harsher penalties to inhibit inappropriate compensation not being investigated. NASCO and several state and payout practices at charitable organizations, includ- attorneys general emphasized the need to reform the ing foundations. The IRS also developed an electronic 990 PF tax form, promote greater communication 990 form to improve the accuracy of nonprofit data col- between IRS and state enforcement agents, and create lection and make information more accessible between electronic filing systems that were available readily to state and federal enforcement personnel. In October both tax authorities and state jurisdictions. Watchdog 2007, the Independent Sector and the panel published groups such as NCRP also testified on the need to the Principles for Good Governance and Ethical improve philanthropic accountability. In his June Practice: A Guide for Charities and Foundations, a list of 2004 testimony during the Senate Finance 33 separate principles to strengthen ethical standards Committee’s hearings on reforming charitable sector through self-regulation within the philanthropic commu- reform and oversight, Rick Cohen, then executive nity. Unfortunately, despite these various regulatory director of NCRP, noted three guiding principles that reforms and tools for self-regulation, abuses of philan- informed NCRP’s agenda for recommendations to thropy that diminish the public trust continue until today. reform accountability: For example, Bloomberg News reported suspicious insider dealing at the Robin Hood Foundation in 2007. 1. The laws and regulations for addressing the An investigation revealed that the foundation maintained accountability of foundations and correcting the an emergency fund that grew from $20 million to excesses reported in the press need to be strength- $144.5 million in less than a decade and was invested in ened. 19 hedge funds, of which seven were operated by Robin 2. Notwithstanding improved statutory and regulato- Hood donors and trustees. These board members were ry standards, the philanthropic sector itself has to paid 2 percent of assets and 20 percent of profit for man- get serious about dealing with the malefactors who aging the donations; the charity paid $14 million in fees sully the good work of organized philanthropy. for hedge-fund management in 2005.233 These actions 3. There should be an increase in the resources devot- demonstrate a direct violation of the IRS’s guidelines for ed to governmental oversight of philanthropy at the maintaining the charitable exemption. As the application federal and state levels—and NCRP several months guidelines for exempt status state, all 501 (c) (3) organi- ago [in 2004] issued a specific proposal for the reuse zations “must not operate for the benefit of private inter- of the foundation excise tax just for this purpose.232 ests such as those of … its shareholders or persons controlled by such interests.”234 After congressional scrutiny, Following the 2004 hearings, the Senate Finance Sen. Grassley voiced disapproval of the foundation’s Committee recommended the formation of an inde- trustee fee policies and the Robin Hood Foundation pendent panel to analyze the state of governance and changed its practices. In a letter to foundation support-

60 ers, then–Executive Director David Saltzman defended tion. In contrast to the final panel recommendations the foundation’s policies, noting that none of the seven made to the Senate Finance Committee that boards trustees served on the board’s investment committee. ought to include a minimum of three people, the Still, because of the media and regulatory concerns, tenth principle from the Panel and the Independent Saltzman’s letter announced a change in operations: Sector’s Principles to improve governance and ethi- “Although we are totally comfortable with these proce- cal behavior suggests that boards should comprise a dures, as part of our board's ongoing governance review minimum of five individuals. Similarly, in his 2004 over the past year, and to avoid even the appearance of statement to the Senate Finance Committee, any conflict, we have decided that none of Robin Eisenberg noted that neither regulation nor legisla- Hood's leadership will manage these funds going for- tion should mandate the maximum size of a board. ward.”235 Such reports underscore the need for substan- Highlighting that many grantee organizations have tive reform of the way accountability and transparency between 20 and 30 board members, he emphasized are demonstrated in the philanthropic sector. This also the benefits of larger boards: “Often, their size is an ensures legal compliance barring insider dealing. important asset, enabling them to achieve regional, As NCRP co-founder and long-time commentator ethnic, professional and community diversity and on the charitable sector Pablo Eisenberg stated before capacity.”238 Eisenberg added that while committee the Senate Finance Committee in 2004, “Public confi- staffers recommended a minimum of three board dence in our charitable organizations has decreased. members, maintaining a minimum of five trustees … There is a growing perception that the nonprofit sec- “provides a better guarantee that the organization tor lacks accountability. We cannot maintain strong can have a broad perspective and better under- and vibrant foundations and nonprofits without public standing of the organization’s purpose and pro- trust. Restoring that trust must be the objective of any grams.”239 The potential negative consequences of a attempts to reform what is wrong with the system and three-person board become clearer when one to strengthen those practices that have been effec- looks, for example, at the Bill and Melinda Gates tive.”236 The partially public nature of foundation dol- Foundation, discussed in the case study of this lars, coupled with the significant increase in founda- chapter. Taken together, these perspectives suggest tion assets, makes restoring the public trust in institu- that ensuring at least a five-person board at a foun- tional philanthropy a practical and a moral imperative. dation increases the likelihood that collective preferences will inform and lead to better decision- making. Improved decision-making is not a BOARD COMPOSITION panacea for eliminating abuses of philanthropy for Board composition is critically important for any personal gain. But, at a minimum, it offers the grantmaking institution. Boards need to be large and potential for better judgment to curb the level of diverse enough to protect the public trust and to abuse and restore the public trust in institutional reflect authentically the priorities of communities philanthropy. served by the foundation.

Board size The board [of a charitable organization] should have enough members Recent research indi- to allow for full deliberation and diversity of thinking on governance and cates that diverse groups are better at other organizational matters. Except for very small organizations, this problem-solving. generally means that the board should have at least five members … The Because a small board board of a charitable organization should include members with the restricts the number of diverse background (including but not limited to, ethnic, racial and gender perspectives of a foundation’s decision-mak- perspectives), experience and organizational and financial skills ing body, increasing necessary to advance the organization’s mission. board size is an important corollary to diver- —Panel on the Nonprofit Sector, Principles 10 and 11237 sifying board composi-

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 61 National Committee for Responsive Philanthropy

Diversifying board composition remains significantly concentrated in the hands of Recent studies indicate that foundation staffs, particu- homogeneous groups. These are disturbing trends larly program officers, are becoming more diverse, among foundation decision-makers, especially con- but the same cannot be said of boards. This means sidering the tremendous increase in foundation that decision-making remains concentrated in the assets, which remain largely exempt from taxation, hands of a homogeneous group at most foundations. controlled by these groups. Moreover, while staffs are becoming more diverse, Similarly, CEO diversity increased by 156.3 per- progress appears to have slowed in recent years and cent from 1982 to 1994 and then by only 41.5 per- the majority of staff diversity is attributable to the cent from 1994 to 2006. Foundation CEOs were even increase in the number of female program officers. A less diverse than the boards analyzed; total CEO recent study commissioned by the Rockefeller diversity increased by a mere 5.8 percent in 2006. Philanthropy Advisors on the diversity of foundation Regarding program officer diversity, the majority of staff and boards over the last 25 years found that increases in the proportion of diversity were between while there has been much progress, it has been 1982 and 1994. Notably, the period from 2002 to inconsistent.240 The biggest gains were seen in the first 2006 saw a decline in program officer diversity.241 half of the time period, but stagnation set in during Neither the report nor this writing seeks to identify the second half. For example, board diversity causal relationships between the factors related to increased by 127.9 percent from 1982 through 1994; increases in staff and board diversity and the trends from 1994 to 2006, the gains were only 32.7 percent. identified. But even for those in the group that has Currently, 87 percent of foundation board members seen the biggest gains in diversity, the statistics are are white, and demographic data on socio-economic telling: although the percentage of women in philan- status of trustees do not exist. Coupled with the small thropy increased, particularly as a proportion of pro- size of many boards, this means that decision-making gram officers,242 these gains were made largely by

THE BILL AND MELINDA GATES FOUNDATION: IMPLICATIONS OF CONCENTRATED DECISION-MAKING AND A NON-DIVERSE BOARD

The board of the Bill and Melinda from grantees to ensure that the what people do tell you – it’s in Gates Foundation comprises three Gates Foundation is achieving what they don’t.”253 people: Warren Buffett, Bill Gates its mission. In fact, Dr. Kochi no While the mission and vision and Melinda Gates. Can such a longer is with the WHO, of the Gates Foundation are small group of decision-makers although the organization states almost universally accepted as bring a plurality of perspectives to that he is on leave and that his laudable, some like Dr. Kochi the board, especially in the departure is unrelated to his crit- raise important issues, for exam- absence of critical feedback? This icism of the Gates Foundation ple about the reliance on techno- is a vitally important question con- as a “cartel” that imposed its logical solutions such as the sidering the mammoth size of the agenda on the WHO and was malaria vaccine versus address- Gates Foundation. unreceptive to critical feed- ing immediate problems such as Pablo Eisenberg, Joel back.252 Even the former direc- dire poverty in less developed Fleishman and Dr. Arata Kochi, tor of the Gates Foundation, countries. Indeed, many develop- the former leader of malaria Patty Stonesifer, cautioned ing countries that welcome the programs for the World Health about the dangers the founda- infusion of monies to improve Organization (WHO), are tion faces because of its lack of health find themselves in the awk- among the few voices that have receptivity to critical feedback, ward position of lacking the raised concerns about the lack stating in the 2007 annual needed infrastructure to put those of controls or honest feedback report that “the danger isn’t in resources to use. Health systems

62 white women. Moreover, even white women remain University of Michigan professor Scott E. Page’s underrepresented on foundation boards, comprising seminal book The Difference: How the Power of 31 percent of all board members in 2006.243 Diversity Creates Better Groups, Firms, Schools and Diversity is a nuanced, complex and dynamic con- Societies246 presents compelling evidence that diver- cept; true and inclusive diversity cannot be reduced sity leads to enhanced effectiveness and gains in effi- to numbers and measures alone.244 Thus, demograph- ciency. Drawing on various statistical models, Page ic diversity is not the only important factor in deter- contends that diversity should be valued for its posi- mining how diverse or inclusive a foundation or its tive contributions within a market framework and board is. As Mary Ellen Capek and Molly Mead note especially for decision-making and addressing prob- in defining “deep diversity,” “Diversity also works to lems. His findings indicate that diverse groups outper- democratize boards and staffs of organizations. More form homogeneous groups, even when ability is con- diverse boards and staffs have a better shot at being trolled for. Page argues that diverse backgrounds, per- effective. Understanding gender in the context of spectives and opinions lead to more accurate collec- other diversities like race, class and culture—which tive predictions and better decisions. The link also means understanding the insidious, often subtle between “diversity” and effectiveness is one that res- and unacknowledged preference for ‘normal’—is onates with many funders, particularly given the con- essential for building healthier institutions. nections between philanthropy and the private sector. Philanthropic and nonprofit leaders interviewed for Importantly, Page’s work must be contextualized so our book emphasized the need for new language to that “diversity” does not get reduced to simple met- capture this understanding, so throughout our book, rics. Social inclusion and authentic ways to diversify we use the term ‘deep’ diversity to describe an institu- foundation boards suggest including the grantee and tionalized understanding of diversity that goes wide community perspectives as two important means to as well as deep.”245 achieve meaningful “deep diversity.” As Dr. Robert K.

overwhelmed by large amounts ment? As the Rockefeller grantee and constituent perspec- of cash are unable to keep pace Philanthropy Advisors’ 2008 report tive. As Scott Page notes, with the amount of work that non- on diversity states, “Inclusiveness “Diverse people … can handle profits now are funded to do [means] sharing of power and deci- any contingency owing to their because of the Gates Foundation. sion-making with the entire range of differences, but they can also The effect has been described as constituents …”255 combine their differences to cre- the “Bill Chill” specifically To its credit, the Gates ate even better solutions.” In because, despite claims to the Foundation recently has created other words, a larger and more contrary, many grantees fear several advisory committees to diverse board at the Gates incurring the wrath of the Gates help diversify and guide its grant- Foundation likely would generate Foundation and the possibility of making; yet, the problem of the more innovative and effective losing grant monies.254 concentration of power among solutions to resolve problems. If the board of the Gates three trustees persists as a chal- Excluding the grantee and con- Foundation never hears honest criti- lenge. Advisory committees do stituent voices from its decision- cism, and if the board does not not have the same decision-mak- making leads to solutions that reflect diversity in any meaningful ing authority as trustees do and are not fully-informed by the real way or incorporate the voice of there are questions about needs of the intended beneficiar- grantees, how is that board sup- whether these committees accu- ies of the Gates Foundation’s posed to exercise the best judg- rately or adequately reflect the grantmaking.

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 63 National Committee for Responsive Philanthropy

Ross, president and CEO of the California Endowment work and bring other valuable intellectual and states, “Diversity is best understood, prioritized and human capital to the relationship that funders do not integrated into the operations of a foundation as a tool have. This expertise should inform philanthropic for effectiveness in, and responsiveness to, the com- decision-making by including these representatives munities being served.”247 on boards. It is knowledge that increases sector-wide There is general consensus that the diversity and impact and helps foundations better understand on- heterogeneity of the foundation universe results in the-ground realities of the environment in which variable perceptions of effectiveness. Yet, there is both parties are working. Some exemplary grantmak- less discussion or agreement on the issue of what ers already include grantee or constituent representa- comprises an authentically diverse board. To tives on their boards. address this gap, the Center for Effective In 2003, NCRP convened representatives from Philanthropy (CEP) conducted a rigorous statistical 50 local, national and regional nonprofits includ- analysis as part of its Foundation Governance ing affinity groups, civil rights organizations and Project. In its second report of the Project, CEP community-based organizations. Among the issues found that “once minority membership reaches raised by participants in their discussion of higher absolute numbers—three or more—ratings improving philanthropic practice was diversifying of opportunity for influence do not vary between board composition. As the report on the convening minority and non-minority [board] members.”248 states, “Meeting participants particularly cited the Importantly, as CEP acknowledges in this report, the need for putting [grantees] on the boards of foun- lack of a single or uniform measure of foundation dations and for expanding the representation of effectiveness makes any analysis of this important people of color on foundation boards as high pri- component of foundation governance challenging. ority tasks …”249 Thus, CEP relied on self-reporting from foundation A 2008 survey by Grantmakers for Effective trustees regarding their perceptions of what com- Organizations (GEO) found that only 14 percent of prises effectiveness as a proxy measure in this grantmaker respondents indicated that they had analysis. The findings on board diversity merit a delegated power about decisions regarding funding specific caution: while the correlation between the to grantees or representatives of recipient communi- absolute number of minority persons on a board ties.250 Foundation asset size is associated with the and the minimum number of those members need- likelihood of engaging grantees or communities ed to ensure that they feel empowered in board dis- served: the larger the foundation, the more likely it cussions is sound, it has the potential to perpetuate is to do so. Even so, GEO’s analysis found that only reductionist viewpoints on what diversity compris- 21 percent of the largest foundations with assets in es. Put differently, just as Page’s work on board excess of $400 million reported delegating deci- diversity and effectiveness must be framed in the sion-making. larger context of social inclusion, so must the CEP GEO’s survey also found that foundation boards findings. It would be counterproductive for boards that include members with nonprofit experience are to assume that once they reach the nominal figure more likely to engage in grantmaking practices that of three “minority” members that there is, in fact, are associated with grantee success. In their sample, authentic diversity reflected in the board’s composi- respondents with one or more nonprofit representation. But the CEP findings do underscore that a tives on the board were twice as likely to report solic- board must have a minimum of five people; iting anonymous or non-anonymous feedback from because a minimum of three non-majority members grantees. GEO notes that while there is an associa- is needed for them to express their opinions, tion between the presence of such board members increasing board size to a minimum of five is a rea- and these “grantee-friendly” practices, causality is sonable and achievable benchmark for any grant- hard to determine. As the report states, it is possible making institution to meet. that grantmakers already engaged in such practice are more likely to maintain nonprofit representation Including the grantee voice in decision-making on their decision-making bodies if the presence of Grantees are more attuned to the needs of their con- these members is associated with better decision- stituents, understand the local context in which they making practice.251

64 TRUSTEE COMPENSATION Principle does, however, state that “Board members Trustee compensation persists as the subject of signif- are generally expected to serve without compensa- icant debate and research in philanthropy. The IRS tion other than reimbursement for expenses incurred does not provide definitive guidance on how to deter- to fulfill their board duties.” The conservative mine appropriate levels of trustee compensation, not- Philanthropy Roundtable’s president Adam Meyerson ing that “the compensation of officers, directors, challenged the “general expectation” clause when his trustees, key employees, and others in a position to organization refused to sign on to the Principles, exercise substantial influence over the affairs of the asserting that there is no such expectation in the sec- charity should be determined by persons who are tor. In 2008, William A. Schambra, director of the knowledgeable in compensation matters and who Bradley Center for Philanthropy & Civic Renewal and have no financial interest in the determina- tion.”257 Media reports Philanthropy has an honest reputation that's being tarnished by continue to demonstrate abuses of trustee the actions of a few greedy trustees and staff members who pay fees for personal enrich- ment and recent themselves far too handsomely .… Foundations have tax-exempt research demonstrates status because they contribute to the greater good. To survive high variability across foundations regarding and prosper, they need the public’s trust. Excessive compensation trustee compensation policies and practices. drains money away from charity and creates an intolerable stain There are two compelling reasons for a for the many selfless trustees who work for little or no money. grantmaking institution to maintain an uncom- – Editorial, The Boston Globe, November 2, 2003256 pensated board: the data do not support pro- ponents of compensation who contend that such pol- senior fellow at the Hudson Institute, synthesized icy results in better service; and more importantly, many of the arguments stated by grantee and founda- every dollar that goes to excessive trustee compensation executives for and against compensation of tion is a publicly subsidized dollar that should be trustees. As Schambra notes in discussing the used to further the grantmaker’s mission. Thus, as a Roundtable’s response, trustee compensation is a rule, trustees should serve without compensation; this legal practice provided that payments are not exces- is expected of and true for the vast majority of grantee sive and can be considered “‘reasonable and neces- organizations. The only exceptions should be if the sary to carry out the exempt purposes of the founda- CEO also is a trustee or if the foundation compensates tion.”259 In contrast, Pablo Eisenberg et al.’s 2003 lower-income board members who otherwise would research notes the potential for self-dealing and abuse be unable to serve because they cannot afford the that results from variable interpretations of the IRS time lost from work. As Virginia Esposito of the guidelines that bar trustees from engaging in such National Center for Family Philanthropy states, practice. As the report states, “According to the IRS, “Foundations are generally averse to supporting that trustees, even family members, can be paid for serv- sort of behavior on the nonprofit side, so why do they ices to a foundation that are reasonable, necessary do it themselves? I would be appalled if a nonprofit and not excessive. There are, however, no firm crite- that I was thinking to fund paid their trustees, so we ria for evaluating what is reasonable, necessary and should not either.”258 not excessive. Such vagueness leaves the door open The 2007 Principles for Good Governance and to potential ethical problems and blatant abuse by Ethical Practice, issued by the Panel on the Nonprofit trustees.”260 Some grantmaking institutions such as Sector convened by the Independent Sector did not the Charles Stewart Mott Foundation never have com- rule out compensating board members. The 20th pensated board members. As the foundation’s presi-

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 65 National Committee for Responsive Philanthropy

dent and CEO William White states, “We have never that provided the highest levels of trustee compensa- had to pay our board members. There are many, many tion include the Margaret L. Wendt Foundation and excellent potential candidates who would love an the Oishei Foundation. The article notes that the opportunity to serve on a foundation board free of $124 million Wendt Foundation pays three trustees charge.”261 $156,000 a year while the Oishei Foundation pays its Media reports indicate that foundation trustees nine trustees a total of more than $300,000 annually. continue to receive excessive compensation and Oishei holds $305 million in assets. Such behavior is abuse their positions in other ways. The 2003 Boston an abuse of the public trust and negatively impacts Globe series concluded that there were many foun- the proportion of foundation assets that are much needed by grantees. In the aggregate, the 80 We have never had to pay our board members. There are foundations analyzed spent approximately 25 many, many excellent potential candidates who would love an cents on operating and administration expenses for every dollar opportunity to serve on a foundation board free of charge. awarded in grants. The article highlights the —William S. White, President and CEO variability in foundation Charles Stewart Mott Foundation expenses associated with asset size and concludes, “Whether for dations “whose tax returns show that officers and costly investment advice or trustee costs, [some, directors are themselves the principal beneficiaries of mostly smaller, foundations’] operating and adminis- foundation assets.”262 For example, the Globe found trative expenses, as a percent of their grants, [are] that Paul C. Cabot Jr., principal trustee of the Paul and twice the average for foundations between 2002 and Virginia Cabot Charitable Trust, paid himself an 2007.”266 Local context may be an influencing factor annual salary of more than $1 million from 1998 to in the cost ratios of smaller foundations noted here. 2001, with an increase in 2001 to finance his daugh- In contrast to the Buffalo News analysis, the ter’s $200,000 wedding. During the same five years, Association of Small Foundations found that most the foundation’s assets declined significantly from surveyed members usually spend 8 cents for each $14 million to roughly $5 million under Cabot’s dollar they pay out in grants.267 stewardship while paying out an average of Smaller samples drawn from the membership of $400,000 a year to grantees. Cabot admitted to the the Council on Foundations indicate that in 2004, 58 Globe that a large proportion of foundation assets percent of independent foundations provided com- was used to maintain his affluent lifestyle.263 This pensation to all or some of their board members, a example demonstrates not only a violation of the figure that went up substantially to 83 percent for public trust but a clear breach of federal laws regard- foundations with assets greater than $500 million.268 ing charitable organizations that apply to private A recent comprehensive analysis by the Urban foundations, i.e., that such entities “must ensure that Institute, the Foundation Center and GuideStar found its earnings do not inure to the benefit of any private that roughly 25 percent of all the foundations studied shareholder or individual” and “must not operate for indicated board compensation on their tax filings for the benefit of private interests such as those of its at least one of the three years studied. Although some founder [or] the founder’s family.”264 of these foundations did not compensate trustees in More recently, the Buffalo News265 reviewed the each of the three years analyzed, approximately 18 tax returns of 80 foundations of variable size and percent did.269 The report authored by Elizabeth Boris type in a series of articles analyzing foundation et al. is one of the first thorough analyses of the vari- grantmaking and expenses in Western New York. The ous factors that influence foundation expense and analysis found that 30 (37.5 percent) of these founda- compensation patterns across different types of foun- tions compensated their trustees. The foundations dations with variable asset sizes. The study analyzed

66 influencing factors at 10,000 foundations from 2001 than $100,000 each in fees, while nearly half paid through 2003. Data analyzed included compensation $25,000 or more. records for more than 50,000 individual staff mem- 3. A subsample of 113 of the large foundations paid bers, managers, trustees and executives as reported trustee fees, and compensation at 18 of these totaled on the 990 and 990 PF forms. The foundations stud- 10 percent or more of administrative costs, while the ied represent 16 percent of all independent, corporate fees of seven were one-third or more. Further, 22 and community foundations, and account for 78 per- small foundations provided fees comprising 25 percent of all foundation giving and 77 percent of all cent or more of administrative costs.271 grantmaking assets. The report thus presents the most accurate available picture of the influential factors for The study concluded that trustee fees should be foundation expenses sector-wide. capped at $8,000 annually per director, emphasizing The analysis shows that compensated board mem- that this would translate to the equivalent of an annu- bers at independent foundations earned a median al salary of $96,000. The researchers recommended salary of $8,000 in the course of the three years stud- excluding trustee fees as an allowable expense for ied. But the same research indicates that the median, foundations to count toward meeting their yearly usually less subject to influential outliers than the payout requirements. As Pablo Eisenberg, one of the mean, still obscures highly compensated board mem- analysts, stated recently to the Buffalo News, “It bers, whose excessive compensation increased the comes down to a class issue that has not been overall average compensation among independent addressed by the foundation world. It’s just an outra- foundation board members to roughly $15,700 in the geous thing that these wealthy folks should get paid three-year study.270 Trustee compensation among for doing their civic duty.”272 He also noted that community foundations was rare, but the average trustee fees account for some $300 million annually among those that did compensate directors was and that most foundation boards are homogeneous between $5,000 and $7,000. Corporate foundations and do not include the types of variable perspectives compensated trustees at rates much lower than either that many nonprofit boards do. community or independent foundations, but these Some grantmakers contend that paying trustees is costs do not include other forms of compensation necessary because of heightened competition for qual- such as direct payment from the parent corporate ified board members from the private sector, where company or other monetary recompense for tasks they receive such fees. For example, John Healy, former performed for the corporation. Compensation was president of the Atlantic Philanthropies, stated that the greater for board members of large foundations with foundation paid its board members “quite handsome- higher annual giving trends. ly” because “we’re asking busy people who have other In 2003, the Center for Public and Nonprofit careers, sometimes in very specialized fields, to give us Leadership at Georgetown University published a a lot of time.” Similarly, Joel Fleishman, former presi- study analyzing information on trustee compensa- dent of the Atlantic Philanthropic Services Co. Inc., the tion for 176 of the largest private foundations in the U. S. program staff of Atlantic Philanthropies, cites this United States determined by assets and for 62 small- competition for trustees from the private sector and er U.S. foundations. Pablo Eisenberg et al. analyzed their limited time as the rationale for foundations com- tax returns from 1998 for each foundation and con- pensating trustees.273 ducted telephone interviews with private foundation In contrast, foundations such as Charles Stewart representatives to verify the accuracy of the data Mott, William and Flora Hewlett, David and Lucile reported on the 990 PF forms. The results demon- Packard, William Penn, Surdna, Rosenberg, George strated that: Gund, and the Rockefeller Brothers Fund do not compensate their trustees. Colburn Wilbur, former presi- 1. In the 238 surveyed foundations, a total of dent of Packard, explained the foundation’s policy by $44,891,982 was paid in trustee fees; close to $25 stating, “Universities, hospitals and even the largest million went to trustees at the large foundations. nonprofits seldom pay trustees; why should the 2. Fourteen of the large foundations studied paid Packard Foundation?” Kirke Wilson, former executive their trustees more than $100,000 each. Five of the director and president of the Rosenberg Foundation 62 smaller foundations paid their trustees more for some three decades, noted that “there is no

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 67 National Committee for Responsive Philanthropy

research supporting the notion that trustee compensa- The IRS guidelines on board compensation are tion results in higher levels of engagement, better vague, subject to variable interpretations of what is grantmaking or better work.”274 Some smaller founda- “reasonable,” and lead to a lack of consensus across tions including the Baptist Community Ministries, the the sector about what this means, even within simi- S. H. Cowell Foundation and the New World lar grantmaking institutions. Because of this lack of Foundation also do not provide trustee fees.275 This agreement and the continued abuses documented allows them to invest more foundation money by the media, as a rule, trustees should serve with- towards charitable causes. out compensation with the two exceptions of the In assessing whether compensated trustees provide CEO or lower-income board members who would better service than uncompensated boards, the Center be unable to serve otherwise. Especially because for Effective Philanthropy (CEP) studied the effective- most foundation trustees come from affluent back- ness of both types of boards. CEP found that paid grounds, there is no defensible rationale for com- trustees often were more active outside of the board pensation that drains the U.S. civil society sector of room than voluntary trustees but concluded that the needed grant dollars to maximize the social benefit data could not determine whether there is a causal of institutional philanthropy’s contributions to its relationship between more trustee engagement and nonprofit partners. compensation. The report also concludes that “even if pay were shown to cause the different behaviors described here, it would remain an open question POLICIES AND PRACTICES THAT SUPPORT whether this would justify the practice—or whether ETHICAL BEHAVIOR there are other, equally effective ways to motivate In 2008, the IRS revised the 990 form for charitable such behavior.”276 organizations, including some grantmaking institutions such as community foundations, to I believe that poor governance leads to wasted assets, include governance information. However, inefficient use of assets, and loss of public trust in the sector. similar changes were For us to ignore these realities would be shirking our not made to the 990 PF form filed by private responsibility, our obligation, to assure that assets are used for foundations. Ensuring ethical operations is exempt purposes, and that the billions of dollars of integral to demonstrating that a grantmaker is federal tax subsidies Congress has authorized are well spent. using the tax subsidy appropriately, not vio- – Steven T. Miller, Commissioner lating the law, and giv- Tax Exempt and Government Entities Division of the IRS277 ing the public a maximum return on its charitable investments. One In lieu of direct monetary compensation, some of the most important things a grantmaking institution grantmaking institutions allow trustees to make discre- can do to build public and regulatory trust in its oper- tionary grants with foundation dollars. But this is, in ations is to maintain appropriate policies and prac- fact, an alternate form of compensation and is not tices that make the prospect of abuse less likely and exemplary practice. While this practice at least ensures demonstrate substantive accountability. These poli- the dollars still are going to a charitable cause of some cies include but are not limited to: a) maintaining kind, there often is little relation between the mission appropriate conflict of interest and whistleblower proof the foundation and the recipient organization. Some tection policies; b) establishing reasonable, not exces- trustees use these discretionary grants to advance their sive, executive compensation; and c) subscribing to own social standing or to replace monies they would and abiding by any of a number of available codes for have given from their personal funds. ethical conduct and good governance.

68 Maintaining appropriate conflict of interest and employee or trustee knows that she or he can report whistleblower protection policies their superiors without fear of retribution. Similar to Several of the Panel on the Nonprofit Sector’s princi- adhering to a conflict of interest policy, protecting ples for good governance align with recommenda- whistleblowers demonstrates that a grantmaker takes tions made in this chapter. Principle 3 is applicable seriously the generous tax subsidies it receives and is directly to ensuring that a foundation is carrying out committed to eliminating abuses. The media reports its work ethically and that conflict of interest policies discussed earlier demonstrate continued violations of are in place. It states, “A charitable organization the public trust. These investigative articles would not should adopt and implement policies and procedures have been possible had the journalists not granted to ensure that all conflicts of interest, or the appear- anonymity to their tipsters. This is one area in which ance thereof, within the organization and the board grantmakers could draw lessons from the fourth estate are appropriately managed through disclosure, in exercising due diligence that ensures ethical oper- recusal, or other means.”278 ations. The IRS governance and related topics guide- The most recent IRS guidelines for nonprofit orga- lines for nonprofits “encourages the board of directors nizational governance state that “the directors of a to adopt an effective policy for handling employee charity owe it a duty of loyalty [that] requires a direc- complaints and to establish procedures for employees tor to act in the interest of the charity rather than in the to report in confidence any suspected financial personal interest of the director … In particular, the impropriety or misuse of the charity’s resources.”282 duty of loyalty requires a director to avoid conflicts of NCRP advocates such policies to ensure that abuses interest that are detrimental to the charity.”279 The are reported without fear of retribution at grantmaking same duty of loyalty should apply to conflicts of inter- and grantee organizations alike. est at grantmaking institutions. Ensuring that a conflict of interest policy is in place provides a foundation a Establishing reasonable, not excessive, executive range of benefits. It can ensure that there is no self- compensation dealing, a loophole left open by the mid-2000s’ regu- Executive staff are compensated under the IRS stipu- latory focus on abuses in the charitable sector. By lation that such compensation is “not excessive and addressing self-dealing, a conflict of interest policy has can be considered reasonable and necessary to carry the potential to curb or prevent abuses from occurring. out the exempt purposes” of the foundation. As with For example, in 2004, the New York Times reported the variable interpretation of the terms “reasonable that executives from the J. Paul Getty Trust were being and necessary” in trustee compensation, determining paid retirement packages many times their base salary. what constitutes “reasonable” compensation for exec- Further allegations led the Council on Foundations to utives of grantmaking institutions remains an area of investigate whether there was “inappropriate compen- considerable debate and disagreement. sation for the foundation’s CEO and potential self- Numerous factors inform the process for determining dealing”280 because of a land procurement deal an executive’s compensation level. Because of regional between the Getty Trust and Eli Broad, a billionaire fin- variations in the cost of employing and retaining high- ancier and close personal friend of the trust’s CEO.281 quality staff, heightened competition for qualified staff By ensuring compliance with its conflict of interest who otherwise could work in the private sector, and the policy, it is possible that the trust would have avoided huge variations in the cost of conducting a foundation’s public embarrassment and censure by the Council on day-to-day operations, the current mandate that com- Foundations. This example also demonstrates the pensation be “reasonable” leaves grantmakers substan- trust’s failure to adhere to its role as an ethical stew- tial flexibility. It is impossible to determine a single, uni- ard of its assets as required by the IRS guidelines for form metric to determine an appropriate level of com- ethical operations, specifically that tax exemption is pensation for foundation executives. But the variable contingent on the organization neither operating for definitions of “reasonable” make it all the more impor- private interests nor engaging in business transactions tant that grantmakers have clear and transparent that do not relate to its tax exempt purpose. processes in place to make compensation decisions. Putting a whistleblower protection policy in place Excessive executive compensation damages the public is an important step to ensure that if and when abus- trust in grantmaking institutions and is an affront to the es of philanthropy for personal gain are suspected, the spirit of philanthropy. For a foundation to increase reg-

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 69 National Committee for Responsive Philanthropy

ulatory and grantee trust in its operations, it should be egregious example demonstrates how executive transparent about the steps taken in determining what it largesse and abuse of the public trust hurts the chari- perceives as reasonable and why. By clarifying and pub- table purpose of an organization. More recently, the licizing the process and policies used to determine public scandal surrounding former CEO Gloria Pace executive compensation, a foundation executive’s com- King’s $2.1 million pension led to outrage among pensation is contextualized better and abuses of philan- individual donors who withdrew their support, result- thropy for personal gain can be curbed. ing in the United Way of Central Carolinas closing its The Chronicle of Philanthropy notes that the medi- fundraising campaign in November 2008 some $20 an levels of executive compensation across the non- million short of the amount raised in the previous profit sector grew at a rate faster than inflation: infla- year; the chapter was among the 20 leading fundrais- tion was 4.1 percent in 2007, while grantee and foun- ing chapters at that time.287 Excessive executive com- dation CEOs received a median compensation pensation that brings a grantmaker bad press is espe- increase of 5 percent. As the Chronicle highlights, this cially harmful for grantmaking public charities that is the largest increase in a one-year period since the rely on raising funds from the public. paper’s 2002 survey that showed a 7.5 percent Pablo Eisenberg has been a regular critic of the prac- increase.283 Although this analysis emphasizes vari- tice of augmenting executive compensation at the ability across types of foundations and notes the expense of talented program officers. He states, “Such emerging trend of larger charities hiring leaders with compensation practices show how many foundations private sector backgrounds as contributing factors, have begun to borrow the corporate cult of the chief some foundations appear to provide unjustifiably executive, with its increasingly high pay, large benefits, large compensation to their CEOs. Another important special perks, and separation from the rest of the staff. finding in the analysis is that many foundation In many cases, the second-highest ranking official in a trustees now provide exorbitant bonuses and fringe foundation … receives half or less of the CEO’s salary, benefits that supplement even seemingly reasonable while excellent program officers may get one-third or executive compensation levels.284 less of the salary their CEO receives.”288 Negative publicity that often accompanies excessive The 990 PF form requires data on the compensa- compensation has significant consequences for a grant- tion provided to all officers, managers, trustees and making institution. For example, the infamous 1992 directors to be listed. A foundation also must report scandal about United Way President and CEO William compensation of the five highest paid employees not Aramony’s theft from the organization continues to included in the section on board members and others haunt United Way chapters nationwide because of the noted. While these data provide meaningful insight extensive media coverage the incident received. into compensation, the variability in how the infor- Aramony was convicted in 1995 on 25 counts, includ- mation is reported makes comparisons over time ing conspiracy to defraud and filing false tax returns; he challenging. For example, although only 25 percent served seven years in prison. In 2002, upon Aramony’s of foundations employ staff, the data on the PF form release from jail, the Nonprofit Quarterly quoted Bob vary by year. An employee’s name may be reported Beggan—the man in charge of United Way’s internation- one way in a given year and differently in another al work who had reported to Aramony for nineteen (e.g., John A. Smith can be reported as J. Smith). years—as stating that he had to travel with a document Uniformity in reporting these data would enhance that explained what had happened because the transparency and allow for longitudinal comparisons, Aramony scandal came up in other parts of the world.285 providing better sector-wide trends and benchmarks The same article notes that many local chapters of accountability and transparency. disaffiliated themselves from the national United Way office and filed for name changes, and that local Subscribing to codes of ethical conduct and good chapters that did not even exist during the early to governance mid-1990s still must address this scandal in the The Panel on the Nonprofit Sector’s second principle “Frequently Asked Questions” sections of their web for good governance states: “A charitable organization sites. In 2006, Kevin McCarthy, CEO of the United should have a formally adopted written code of ethics Way of Inland Valley in California, said that he still with which all of its directors or trustees, staff and vol- heard regularly about the Aramony scandal.286 This unteers are familiar and to which they adhere.”289 The

70 Ford Foundation, for example, makes publicly avail- Supreme Court Justice Louis Brandeis often is quoted able on its web site the code of ethical conduct it in discussions about transparency and accountability, expects staff to follow.290 It also publicly discloses its “Sunlight is said to the best of disinfectants.” governance practices.291 Additionally, Ford makes NCRP believes that regulation of philanthropy is other documents on governance available in three necessary and important, and that when done proper- broad areas: the foundation’s governing documents; its ly, it can help foundations achieve their missions and committee charters and memberships; and the policies protect the public interest. Although regulation and and procedures it adheres to.292 The California mandates are among the ways that grantmaking insti- Endowment publicly discloses similar information on tutions can demonstrate substantive transparency, vol- its web site, including its code of ethics and conflict of untarily engaging in meaningful transparency by dis- interest policy.293 There likely are many more founda- closing relevant information publicly is one way that tions that follow similar practice, but without central- an exemplary grantmaker demonstrates its steward- ized data it is not currently possible to determine the ship of the partly public dollars with which it is proportion of foundations that do so. entrusted. As Sean Stannard-Stockton, principal and There are numerous codes for good governance, director of Tactical Philanthropy states, “We need to accountability, ethical behavior and transparency. The reframe transparency away from some sort of thing Independent Sector has compiled a list of nearly 100 that philanthropy is being forced to consider by out- such standards for nonprofits and foundations.294 side forces and instead celebrate transparency as the Among those comprising the Independent Sector’s mark of an organization that is truly committed to compendium are several resources for grantmaking improving the field.”297 institutions of variable types, including the Council NCRP long has advocated for voluntary informa- on Foundations and the Minnesota Council on tion disclosure as one way to help ensure foundation Foundations, Indiana Grantmakers Alliance, accountability. At the 1980 Council on Foundations Washington Grantmakers and the New York Regional annual conference, NCRP presented its first report on Association of Grantmakers.295 These publicly avail- foundation accountability, Foundations and Public able codes of ethical conduct and good governance Information: Sunshine or Shadow. The report brought provide useful tools for grantmaking institutions, and media and foundation attention to sector-wide lax exemplary grantmakers subscribe to and abide by one reporting. The increased publicity led to many foun- or more of these sets of principles. dations, including the Pew Memorial Trust and the Rockefeller Foundation, to publish annual reports. Today, most foundations routinely publish such TRANSPARENCY AND DISCLOSING reports and make them publicly available.298 INFORMATION FREELY In 2008, the IRS revised the 990 form, the tax form Transparency is integral to ensuring that a grantmak- all charitable organizations must file, to include infor- ing institution is able to demonstrate that it is making mation about governance. Steven Miller described the appropriate use of the generous tax subsidies afforded rationale behind the changes to the 990 form as fol- it by the government. The public also has a right and a vested inter- By making full and accurate information about its mission, est to expect a significant level of disclosure activities, finance, and governance publicly available, a charity about foundation oper- encourages transparency and accountability to its constituents. ations. Meaningful transparency can help 296 policymakers and the —Internal Revenue Service, Governance and Related Topics public discern the extent to which the subsidies afforded foundations actually serve the public lows: “Despite the absence of explicit federal statuto- good and if a foundation is maximizing its own and ry provisions setting forth clear governance standards, the public’s return on its charitable contributions. As what I am calling jurisdictional gaps, we are not inter-

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 71 National Committee for Responsive Philanthropy

lopers trying to regulate an area that is beyond our access, equity, and diversity, and to end discrimina- sphere. Rather, the effects of good or bad nonprofit tion based on race, ethnicity, gender, sexual orienta- governance cut across virtually everything we see and tion, disability, or age.”301 Importantly, this founda- do in our work. It impacts whether the organization is tion also seeks out grantees that reflect the same operated to further exempt purposes and public, rather diversity values that it employs in its own staffing and than private, interests. It dictates whether the organiza- board composition. The California Endowment dis- tion’s executives are compensated fairly or excessive- closes the ethnic and gender breakdown of its staff ly. It influences whether the organization makes and trustees. This mirrors the foundation’s mission of informed and fair decisions regarding its investments improving the health of California’s multicultural or its fundraising practices, or allows others to take communities.302 These foundations display a commit- unfair advantage. The question is no longer whether ment to ensuring inclusive diversity, matching mission the IRS has a role to play in this area, but rather what with grantmaking and disclosing publicly information that role will be.”299 Grantmaking public charities now that helps build the public trust in philanthropic insti- are required to disclose this governance information tutions. Institutional grantmakers should take valuable because they file a 990 form. For private foundations lessons from such foundations’ work on diversity and that file the 990 PF form, it is reasonable and fair to their willingness to share information openly. expect similar disclosures voluntarily. Notably, many grantmakers require their grantees to provide demographic data on staff, including Some people … have been raising the issues of philanthropic executive leadership and sometimes boards diversity and inclusiveness as if such calls were new. and constituents. Just as But these concerns, in fact, have been acknowledged the heterogeneity of the foundation world com- in philanthropic circles for at least three decades. pels accountability to be repositioned without a “one-size fits all” – Lori Villarosa, Director, Philanthropic Initiative for Racial Equity approach, grantee and constituent diversity must be considered There is a void of information that can help the variable, subject to local context and non-uniform. public gauge whether or not taxpayer subsidized dol- Further, if a foundation believes that grantee diversity lars are being used to further a foundation’s charitable disclosure is relevant information to inform board purpose. This results in a lack of substantive trans- decision-making, the same criterion should apply to parency. Recent legislation in California highlighted foundation disclosure of diversity data. As Lori the lack of available information about diversity in Villarosa, director of the Philanthropic Initiative for foundations. Although the bill, AB 624, eventually Racial Equity, stated in the wake of the debates sur- was withdrawn by its sponsor, the debate sparked rounding AB 624, “Some people … have been raising important discussions about diversity in philanthropy issues of philanthropic diversity and inclusiveness as and has led to some additional research and to new if such calls were new. But these concerns, in fact, foundation investments in the capacity of minority- have been acknowledged in philanthropic circles for led nonprofits.300 at least three decades.”303 This is an important Some foundations provide ready access to diversi- reminder that diversity is not a new concept for grant- ty data. The San Francisco Foundation, for example, makers; rather, it is a dynamic and salient issue that sees contextualized diversity as a core value and relates directly to a foundation’s own effectiveness. demonstrates its values by making demographic data Moreover, it underscores that diversity should be val- on its staff and board publicly available and ensuring ued and contextualized in the framework of authentic that its grants go to truly diverse groups that reflect the inclusion. communities being served. According to the founda- Some foundations have made notable voluntary tion’s policy on diversity, it “actively seeks to promote efforts to share information publicly. Yet, too few

72 foundations engage in real transparency, leading to grantmakers to analyze how much of the state’s phil- questions about whether the tax subsidy is being used anthropic giving benefits communities of color.304 The appropriately. Rigorous self-regulation is valuable for report analyzed domestic giving from 1996 to 2005 strengthening the public trust in institutional philan- and found variable trends for giving to benefit the thropy and ensuring that grantmakers can withstand economically disadvantaged and racial or ethnic any level of scrutiny from the IRS and the public. minorities.305 Giving that is intended to benefit mar- Sharing significant and relevant information freely is a ginalized groups, broadly defined, is discussed in- necessary step. At a minimum, an exemplary grant- depth in Chapter I of this book. The salient point for making institution demonstrates transparency and disclosure however, is that studies like the one refer- accountability by sharing a range of information enced above fill a void in sector-wide knowledge including but not limited to: about who institutional philanthropy seeks to benefit. In the absence of comprehensive disclosure, there is a. Information about the policies it maintains that no way to assess whether a funder is making appro- promote ethical behavior; priate use of the generous tax subsidies afforded it or b. Demographic data on its trustees, staff, grantees if it is advancing elite interests via patronage grants. and the intended beneficiaries of its grants; The 990 PF form requires disclosure of the top two c. Information about whether or how it is using its program-related investments (PRI) that a foundation assets in non-grantmaking ways that support its makes, and the balance of PRI monies are reported in mission; the aggregate. These usually are below-market loans d. Information about the types of grants it provides; made to grantee organizations and count toward the and, qualifying distribution requirement. Beyond this, e. Useful information for grant seekers about priori- there are no publicly available data on if and how a ties and application procedures. foundation is leveraging its assets in ways that support its mission. An increasing number of funders engage By voluntarily disclosing this information freely, an in mission investing, a strategy discussed in Chapter exemplary grantmaker demonstrates that it is an ethi- IV that seeks both a financial and social return, but cal steward of the partially public dollars with which there is little publicly available data on this. NCRP it is entrusted. encourages those grantmakers who do screen their investments, engage in shareholder activism or seek Information that should be voluntarily disclosed out proactive mission investments to make such infor- Grantmakers should make comprehensive informa- mation publicly accessible. tion about their charitable contributions, governance The Foundation Center tracks data on nearly all and management policies publicly available. They U.S. grantmakers; it also tracks and analyzes detailed also should disclose relevant information about information for more than 1,200 large foundations. A aspects of their other operations to demonstrate sub- crucial component of the Foundation Center’s data stantive accountability. In keeping with the IRS’s collection is the information it gathers on the types of guidelines for nonprofits, complete and accurate support a foundation provides. Data include informa- financial statements and accounting reports should be tion on the proportion of monies granted for direct posted on a foundation’s web site and made publicly services, general operating support, continuous fund- available upon request. Many foundations already do ing, leadership development and capacity building, this, but gauging whether an individual foundation among others. These data allow for closer scrutiny of implements these policies is a daunting task in the foundation financial priorities and are the only infor- absence of centralized data. mation available outside of the 990 PF forms that the The issue of disclosing demographic data on public, grantees, watchdogs and the media can use to trustees, staff and grantees is addressed earlier in this look at private foundations. They also provide grant chapter under board composition. However, recently, seekers with valuable information on which grant- the question of who benefits from philanthropy has makers to approach when looking for particular types received substantial attention. In response to the of support. There are many benefits to demonstrating debate sparked by AB 624, the Foundation Center transparency through increased disclosure of the worked with three California regional associations of types of grants a foundation provides. Some criticize

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 73 National Committee for Responsive Philanthropy

the inherent bias of self-reported data, but two impor- has an online form for non-anonymous feedback.308 tant caveats about the Foundation Center apply: the Many foundations that have commissioned CEP to data are verified against financial records for accura- conduct these assessments make their findings pub- cy, and until such time as more disclosure is mandat- licly available.309 This is a good grantmaker practice ed, this is an interim step to rebuild the public trust in of demonstrating accountability and transparency institutional philanthropy. Finally, foundations them- publicly, especially when the results not always are selves can benefit by participating in such voluntary positive. reporting, allowing institutions to assess their own The Kresge Foundation commissioned CEP to behavior against similarly endowed counterparts to conduct their analysis for grantees and applicants. gauge their own effectiveness and policies. The findings indicated that Kresge was ranked by Grant seekers currently can look to specific grant- survey respondents at or below the 25th percentile makers, and to databases such as the ones maintained on five of CEP’s eleven main indicators, including by the Foundation Center and GuideStar, to find infor- community impact and grantee satisfaction. In mation about what a particular foundation requires to response, Kresge president Rip Rapson issued an consider a grant application. A recent report by a col- open letter to the community, noting that while he laborative of foundations and nonprofits identified was disappointed with the report’s findings, that he variable application procedures as a serious impedi- “wanted our partners to help us serve them better. ment to grantee and funder effectiveness and efficien- This is the only way we will realize our desire to cy.306 While this may seem obvious, a foundation also innovate and improve the bedrock conditions and should make its application procedures easily avail- long-term opportunities for individuals, families and able to grant seekers and the public. This will result in communities in need.”310 Not only does Kresge pro- efficiency gains for both parties and further demon- vide public access to its survey, the foundation strate ethical stewardship. Grantees often are frustrat- developed a multi-year transition guided by nine ed by how challenging it is to determine the priorities core values in expanding its grantmaking. As the and procedures of various grantmakers. foundation states on its web site, “We believe we have a moral obligation to recalibrate our grantmak- Securing anonymous feedback ing by elevating the values that have quietly guided Third party or neutral external actors often can help us for more than 80 years. In doing so, we hope to foundations elicit the needed anonymous feedback contribute more meaningfully to those organizations on their performance. Independent consultants pres- that most directly advance these values.”311 By ent funders with an opportunity to get authentic feed- incorporating critical feedback in its decision-mak- back that is not euphemized because of the threat of ing, this institutional grantmaker demonstrates lost funding. An important issue that arises in working responsiveness to external feedback and exemplary with independent consultants is where the costs to stewardship. cover this expense should come from. Because this Arthur Schmidt, founder of GuideStar, notes that feedback offers significant improvements for deci- CEP has made a significant contribution to the field by sion-making, foundations should consider seriously offering its Grantee Perception Report as a tool for whether anonymous feedback should be viewed as a institutional grantmakers to solicit anonymous fixed cost in institutional philanthropy. grantee feedback. Yet, Schmidt highlights the tool’s Some institutional grantmakers already engage in limitations because foundations only participate vol- this exemplary practice; for example, the David & untarily and there are significant costs associated with Lucile Packard Foundation solicits confidential contracting out this work. Like NCRP, Schmidt grantee feedback, which can be provided anony- believes that public disclosure of these reports has mously or non-anonymously.307 The foundation also sector-wide benefits but that “until the candid views makes its Grantee Perception Report, a grantee survey of grantees toward foundation grantmakers are gath- tool developed by the Center for Effective ered and revealed publicly, the model has limited Philanthropy (CEP) to help foundations secure grantee utility.”312 In sum, exemplary philanthropy solicits feedback, publicly available on its web site. The authentic grantee feedback, uses that information to James Irvine Foundation also makes the findings of its inform its decision-making, and is open and transpar- CEP assessment publicly available on its web site and ent about the findings.

74 Publicly disclosing “failures” is one final area that merits specific attention. As James E. Canales, CEO of the James Irvine Foundation, said, “Given the emphasis in foundations these days on communication, transparency and accountability, it just seems to me that you aren’t going to be credible if all you talk about is your successes.”313 The Hewlett and Irvine Foundations each made publicly available reports314 that documented problems encountered during program implementation. Moreover, both foundations shared this information with the New York Times,315 allowing broad public access to this information. These two foundations demonstrate exemplary voluntary disclosure of relevant information and the importance of substantive accountability and transparency.

CONCLUSION: SETTING THE BAR FOR PHILANTHROPY AT ITS BEST As this chapter demonstrated, the partly public nature of foundation dollars makes it incumbent on institutional grantmakers to behave as ethical stewards of the monies with which they are entrusted. The board of a grantmaking institution ultimately is responsible for ensuring legal and regulatory compliance, transparency, accountability and maintenance of policies that promote ethical behavior. Because of the lack of centralized or comprehensive data cited throughout this chapter, it is not possible to determine the proportion of foundations that employ these practices. Yet, some exemplary foundations already do follow these policies and practices, as documented throughout. Based on the analysis presented in this chapter, NCRP advocates that all foundations adopt and implement the three fair and reasonable measures that increase the likelihood of a foundation acting as an ethical steward. As more grantmakers adopt the measures described in this chapter, the social benefit of philanthropy will be maximized and the public trust in institutional grantmaking will be rebuilt.

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 75 National Committee for Responsive Philanthropy

Criterion III: Ethics

A grantmaker practicing Philanthropy at Its Best serves the public good by demonstrating accountability and transparency to the public, its grantees and constituents.

a) Maintains an engaged board of at least five people who include among them a diversity of perspectives—including of the communities it serves—and who serve without compensation

b) Maintains policies and practices that support ethical behavior

c) Discloses information freely

> Which parts of the chapter did you like the most? > What policies and practices do we have in place to Why? support ethical behavior? How did we establish our conflict of interest policy? Our whistleblower policy? > Which parts did you like the least? Why? Who is ensuring compliance with these? How do we set executive compensation? Should we consider > Is it important to demonstrate accountability and adopting new policies, following our current policies transparency? Why or why not? How and when more closely or revising our policies to align more did we reach this decision? How often do we with funders with comparable assets and missions? review our policies regarding these issues? > What information do we disclose freely to the pub- > Do we feel that the size and diversity of our board lic? Is that enough? How did we determine that could improve? If so, in what ways? If not, what this level of disclosure is appropriate? Do we are the barriers to us doing so? Have we consid- share demographic information about our board, ered including the grantee perspective on our staff and grantees? Do we have ways to ensure we board? How do we define diversity? get authentic feedback? Why or why not?

> How did we establish the compensation policy we > What else from this chapter should inform our cur- have in place for trustees? Why? If we don’t com- rent grantmaking priorities? pensate trustees, are we ensuring that there’s no self-dealing or providing other non-monetary > If we want to make any changes based on this dis- forms of compensation? If yes, how did we deter- cussion, what will need to happen in order to mine this is appropriate? make those changes? What are the next steps?

76 NOTES FOR CHAPTER III: ETHICS

218. He was president of the Minneapolis Foundation when this 204_senate_charity_transcript.pdf; See also The National was written. Quoted in: Emmett D. Carson “A Worst Case Committee for Responsive Philanthropy, Standards for Scenario or the Perfect Storm? Current Challenges to Foundation and Corporate Grantmaking: An Accountability Foundation Board Governance,” Responsive Philanthropy, Statement by the National Committee for Responsive (Summer 2003). Philanthropy (Washington, D.C.: National Committee for 219. The Internal Revenue Service. “Governance and Related Responsive Philanthropy, June 2004). Topics – 501 (c) (3) Organizations,” The Internal Revenue 233. Ryan J. Donmoyer and Alison Fitzgerald. “Taking from the Service (February 4, 2003), http://www.irs.gov/pub/irs- Rich, Giving to the Board; Management of Robin Hood’s tege/governance_practices.pdf. Emergency Assets Raise Eyebrows,” The Washington Post, July 220. The Foundation Center. Foundation Growth and Giving 22, 2007, F07. Estimates: Current Outlook (2008 Edition) (New York, NY: The 234. The Internal Revenue Service. Applying for 501 (c) (3) Tax- Foundation Center, 2008). Exempt Status: Publication 4220, Op. Cit. 221. Steven T. Miller. “Remarks before the Georgetown Law Center 235. David Saltzman. letter to Robin Hood Foundation Supporters. Seminar on Issues in Nonprofit Governance,” speech, Reprinted in John Carney, “Robin Hood Fund Pulls Georgetown University Law Center, Washington, D.C., April Investments from Hedge Fund Managers,” Dealbreaker Blog, 24, 2008. posted July 19, 2007, http://dealbreaker.com/2007/07/robin- 222. Christine Ahn. “Democratizing Philanthropy: Challenging hood-fund-pulls-investme.php#more (accessed January 14, foundations and Social Justice Organizations,” Responsive 2009); See also Ryan J. Donmoyer and Alison Fitzgerald, Philanthropy (Fall 2007). “Robin hood Ends Investments in Board Members’ Funds, 223. The Internal Revenue Service. Applying for 501 (c) (3) Tax- (Update 2)” Bloomberg News, July 19, 2007, Exempt Status: Publication 4220, (Washington, D.C.: Internal http://www.bloomberg.com/apps/news?pid=newsarchive&sid Revenue Service), 2. http://www.irs.gov/pub/irs-pdf/ =a0Qi9IFfhVLQ. p4220.pdf. 236. Pablo Eisenberg. “Recommendations for the Reform of the 224. Ibid. Adapted from p. 3. Nonprofit Sector,” statement to the U.S. Senate Committee on 225. Garry W. Jenkins. “Incorporation Choice, Uniformity, and the Finance, July 22, 2004. Reform of Nonprofit State Law,” Georgia Law Review 41 237. Panel on the Nonprofit Sector. Principles for Good (2007): 1117. Governance and Ethical Practice: A Guide for Charities and 226. Only private foundations must file a 990 PF form while other Foundations (Washington, D.C.: Panel on the Nonprofit grantmakers such as community foundations file the same Sector, October, 2007). 990 form as do grantee organizations, leading to variable dis- 238. Eisenberg, 2004, Op. Cit. closures among institutional grantmakers. 239. Ibid. 227. Susan Kraft and David Morse. “Public Scrutiny of Foundations 240. Jessica Chao et al. Philanthropy in a Changing Society: and Charities: The Robert Wood Johnson Foundation Achieving Effectiveness through Diversity (New York: Response,” in To Improve Health and Health Care Vol. IX: The Rockefeller Philanthropy Advisors, 2008). Robert Wood Johnson Foundation Anthology, ed. Stephen L. 241. Ibid., pp. 19–20 Isaacs and James R. Knickman (San Francisco, CA: Jossey- 242. Ibid.; Women comprised a total of 75.8 percent of all founda- Bass, 2006), 213-242. tion staff,; 74 percent of program officers and 51.5 percent of 228. Mark W. Everson, written statement to the U.S. Senate CEOs in 2006. Committee on Finance Hearing on Exempt Organizations: 243. Ibid. p. 21 Enforcement Problems, Accomplishments, and Future 244. Mary Ellen S. Capek and Molly Mead. Effective Philanthropy: Direction, April 5, 2005. http://www.irs.ustreas.gov/pub/irs- Organizational Success Through Deep Diversity and Gender tege/metest040505.pdf Equality (Cambridge, MA: MIT Press, September, 2007). 229. Kraft and Morse, Op. Cit., p.228. 245. Effective Philanthropy: Organizational Success through Deep 230. See Pablo Eisenberg et al. Foundation Trustee Fees: Use and Diversity & Gender Equity, “Defining ‘Deep Diversity,’” Abuse (Washington, D.C.: The Center for Public and http://effectivephilanthropybook.org/concepts/deep.html. Nonprofit Leadership, Georgetown Public Policy Institute, 246. Scott E. Page, The Difference: How the Power of Diversity September 2003). Creates Better Groups, Firms, Schools, and Societies 231. Mark Pacella, testimony before the United States Senate (Princeton, NJ: Princeton University Press, 2007). Committee on Finance Hearing on Charity Oversight and 247. Dr. Robert K. Ross. “Diversity in philanthropy achieved through Reform: Keeping Bad Things from Happening to Good leadership, not mandates,” The Mercury News, March 12, 2008. Charities, June 22, 2004. 248. Phil Buchanan et al. Beyond Compliance: The Trustee 232. Rick Cohen, testimony before the Senate Finance Committee Viewpoint on Effective Foundation Governance: A Report on Hearing on Charity Oversight and Reform: Keeping Bad Phase II of the Center for Effective Philanthropy’s Foundation Things from Happening to Good Charities, June 22, 2004, Governance Project (Cambridge, MA: Center for Effective http://www.kaisernetwork.org/health_cast/uploaded_files/062 Philanthropy, 2005), 3.

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 77 National Committee for Responsive Philanthropy

249. The National Committee for Responsive Philanthropy. The 276. Buchanan et al., Op. Cit., p. 11. Core of the Matter: NCRP’s First Convening on the Need to 277. Steven T. Miller, “Remarks before the Georgetown Law Center Increase Nonprofit Core Operating Support, June 4, 2003 Seminar on Issues in Nonprofit Governance,” speech, (Washington, D.C.: National Committee for Responsive Georgetown University Law Center, Washington, D.C., April Philanthropy, July 21 2003), 11. 23, 2008. 250. Grantmakers for Effective Organizations. Grantmaking 278. Panel on the Nonprofit Sector, Op. Cit., p. 9 Practices that Support Grantee Success: Survey Report 279. Internal Revenue Service, February 4, 2003, Op. Cit. (Washington, D.C.: Grantmakers for Effective Organizations, 280. Randy Kennedy and Carol Vogel, “Executive Severance Is a 2008), 31–32. Focus at Getty,” The New York Times, February 11, 2006. 251. Grantmakers for Effective Organizations, Op. Cit., p. 39. 281. The trust was put on probation by the Council on Foundations 252. Sandi Doughton. “Not many speak their mind to the Gates in December 2005; membership was restored in mid-April Foundation,” The Seattle Times, August 3, 2008. 2006, contingent on the trust providing the council with infor- 253. Ibid. mation regarding management and governance practices. The 254. Ibid. See also http://gateskeepers.civiblog.org/, a watchdog trust’s web site states that it ‘strengthened’ its conflict of inter- group that monitors the Gates Foundation’s activities. est policies as part of this process. J. Paul Getty Trust, “J. Paul 255. Chao et al., Op. Cit. Getty Trust Membership Status in Council on Foundations 256. “Firmer foundations,” editorial. The Boston Globe, November Restored; Council on Foundations Lifts Probation,” press 2, 2003, G10. release, April 17, 2006, http://www.getty.edu/news/press/cen- 257. IRS, February 4, 2003, Op. Cit. ter/council_on_foundations_release041706.html. 258. Quoted in William A. Schambra. “Board Compensation: To Pay 282. Internal Revenue Service, February 4, 2003, Op. Cit. or Not to Pay?” Philanthropy Roundtable (January/February 283. Noelle Barton and Ben Gose. “Executive Pay Outpaces 2008): 3. Inflation,” The Chronicle of Philanthropy, October 2, 2008. 259. Ibid. 284. Ibid. 260. Eisenberg et. al. 2003, Op. Cit.. p. 10. 285. Matthew Sinclair. “William Aramony is back on the Streets,” 261. Quoted in Schambra, Op. Cit., p. 3. The Nonprofit Times, March 1, 2002. 262. Beth Healy et al. “Some officers of charities steer assets to 286. Sharon Hoffman. “For U.S. charities, a crisis of trust: Scandals, selves,” The Boston Globe, October 9, 2003. accountability problems combine to undermine public 263. Ibid. support,” NBC News, November 21, 2006, 264. The Internal Revenue Service. Applying for 501 (c) (3) Tax- http://www.msnbc.msn.com/id/15753760/. Exempt Status: Publication 4220, Op. Cit. 287. Eric Frazier. “Charlotte’s United Way Spurs Warning to 265. Patrick Lakamp and Mary B. Pasciak. “Why does it goes to Nation: Agency’s probe of pension scandal spurs warning to much to give Money away? A few foundations spend almost affiliates elsewhere not to be like Charlotte,” The Charlotte as much on expenses as they do on grants,” The Buffalo News, Observer, December 16, 2008. December 23, 2008. http://www.buffalonews.com/home/ 288. Pablo Eisenberg. “Excessive Executive Compensation Needs to story/530961.html Be Stemmed,” The Chronicle of Philanthropy, April 29, 2004. 266. Ibid. 289. Panel on the Nonprofit Sector, Op. Cit., p. 8. 267. The Association of Small Foundations. 2007–2008 Foundation 290. The Ford Foundation. “Staff Code of Conduct and Ethics,” Operations & Management Survey: The tool for small founda- http://fordfound.org/pdfs/about/Staff_Code_of_Conduct_and_ tion benchmarking (Washington, D.C.: The Association of Ethics.pdf. Small Foundations, 2007), p. 31. The report notes that these 291. The Ford Foundation, “Trustee Code of Ethics,” http://ford- cost ratios would earn most ASF members “a perfect ten rat- found.org/pdfs/about/Trustee_Code_of_Ethics.pdf. ing” using Charity Navigator’s metrics. Survey respondents 292. Ibid. included more than 950 of ASF’s 3,145 members. 293. See: The California Endowment. “About Us: Striving to Set the 268. See Schambra, Op Cit. Standard for Accountability and Transparency,” http://calen- 269. Elizabeth Boris et al. What Drives Foundation Expenses & dow.org/article.aspx?id=140&ItemID=140. Compensation? Results of a Three-Year Study (Washington, 294. See: Independent Sector. “Compendium of Standards, Codes, D.C.: The Urban Institute, 2008), 56. and Principles of Nonprofit and Philanthropic Organizations,” 270. Ibid, p. 55. http://www.independentsector.org/issues/accountability/stan- 271. Eisenberg et al. 2003, Op. Cit., pp. 7–9. dards2.html. 272. Lakamp and Pasciak, Op. Cit. 295. Ibid. 273. Schambra, Op. Cit., p. 2 296. Internal Revenue Service, February 4, 2003, Op. Cit. 274. Schambra, Op. Cit., p. 3 297. Sean Stannard-Stockton. “Demonstrating Impact: 275. Eisenberg et al., 2003 Op Cit. p: 21; See also Table 1 of this Philanthropy’s Urgent Call to Action,” Tactical Philanthropy publication for trustee fees in the sample. Because of the lack blog, April 30, 2007, http://tacticalphilanthropy.com/2007/ of centralized data, there are likely many more foundations 06/demonstrating-impact-philanthropy%E2%80%99s-urgent- that do not compensate trustees. The list of foundations cited call-to-action-2, (accessed January 14, 2009). here is simply illustrative, demonstrating that regardless of 298. The National Committee for Responsive Philanthropy. 30 foundation size, some grantmakers already engage in this Years: A History from 1976 to 2006, (Washington, D.C.: exemplary practice. National Committee for Responsive Philanthropy, 2007), 9–10.

78 299. Miller, April 23, 2008, Op. Cit., p.1-2. 300. See, e.g., Lawrence T. McGill, Algernon Austin and Brielle Brian. Embracing Diversity: Foundation Giving Benefiting California’s Communities of Color, (New York: The Foundation Center, 2008). 301. The San Francisco Foundation. “The San Francisco Foundation Policy on Diversity,” http://www.sff.org/about/ who-we-are/diversity. 302. The California Endowment, “About Us: Facts & Figures,” http://www.calendow.org/Article.aspx?id=1876&ItemID=1876. 303. Philanthropic Initiative for Racial Equity. Critical Issues Forum, Measuring What We Value, Vol. I (Washington, D.C.: Philanthropic Initiative for Racial Equity, April 2008), 3. http://www.racialequity.org/docs/final%20layout.pdf. 304. McGill et. al., Op. Cit. 305. Ibid., pp. 2–3. 306. Jessica Bearman. Drowning in Paperwork, Distracted from Purpose: Challenges and Opportunities in Grant Application and Reporting (Washington, D.C.: Project Streamline, 2008). 307. The David & Lucile Packard Foundation, “Grantee Feedback,” http://www.packard.org/categoryDetails.aspx?RootCatID=2& CategoryID=229. 308. See: The James Irvine Foundation. “Grantee Perception Reports,” http://www.irvine.org/evaluation/foundation-wide- assessment/granteeperceptionreports; and The James Irvine Foundation. “Give Us Your Feedback,” http://www.irvine.org/ contact-us/give-us-feedback. 309. For a comprehensive list of foundations that disclose results publicly, see: The Center for Effective Philanthropy. “Grantee Perception Report: Public Results,” http://www.effectivephil- anthropy.org/assessment/assessment_gprpublicreports.html. 310. Rip Rapson. “Grantee Perceptions Essential to the Philosophical and Programmatic Expansion of our Grantmaking,” The Kresge Foundation, http://www.kresge.org/ content/displaycontent.aspx?CID=139. 311. The Kresge Foundation. “How We Are Changing,” http://www.kresge.org/content/displaycontent.aspx?CID=64 312. Arthur “Buzz” Schmidt. “Escaping the Perpetuity Mindset,” The Nonprofit Quarterly (Fall, 2008). 313. Stephanie Strom. “Foundations Find Benefits in Facing Up to Failures,” New York Times, July 26, 2007. 314. Gary Walker. Midcourse Corrections to a Major Initiative: A Report on the James Irvine Foundation’s CORAL Experience (San Francisco: The James Irvine Foundation, 2005); Prudence Brown and Leila Feister. Hard Lessons about Philanthropy & Community Change from the Neighborhood Improvement Initiative (Menlo Park, CA: William & Flora Hewlett Foundation, March, 2007). 315. Strom, Op. Cit.

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 79

Chapter IV: Commitment

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 81 National Committee for Responsive Philanthropy

Criterion IV: Commitment — At A Glance

A grantmaker practicing Philanthropy at Its Best serves the public good by engaging a substantial portion of its financial assets in pursuit of its mission.

a) Pays out at least 6 percent of its assets annually in grants

b) Invests at least 25 percent of its assets in ways that support its mission

> The purpose of the tax exemption that grant- tremendous impact when given to an effec- makers enjoy is to enable them to meet their tive nonprofit partner. charitable goals and serve the public interest. When a foundation warehouses assets instead, > A foundation also can use its investment assets it eschews its charitable purpose at the expense to further its mission in ways that go beyond of taxpayers. grantmaking. Investment screens, shareholder advocacy and proactive mission investing are > The foundation payout rate has been a frequent three means to diversify a grantmaker’s portfo- subject of public policy debate. The 1969 Tax lio in support of its mission. Reform Act established a 6 percent payout rate; the rate was reduced to 5 percent in 1976. Since > Research demonstrates that mission investing, then, many foundations have adopted the legal generally speaking, yields similar returns to tra- minimum as a de facto maximum. The variable ditional investing strategies. A growing number excise tax foundations pay serves as a disincen- of funders are practicing mission investing, and tive to higher payouts. the leaders in this field invest 25 percent or more of their assets in these ways. > Perpetual philanthropic institutions play a valuable role in sustaining the nonprofit sec- > Because data on payout and mission investing tor and enhancing the common good, as do are neither centralized nor easily available, we foundations that decide to spend down their cannot say what proportion of the nation’s endowments. Paying out at least 6 percent of grantmakers meet or exceed these bench- investment assets in grants is not inconsistent marks. The principle undergirding this criterion with the goal of perpetuity; some grantmak- is that tax-exempt assets should not be ware- ers that don’t have any intention to sunset housed; rather, they should be deployed in already do this. These exemplary philan- support of the charitable purpose of the foun- thropic institutions recognize that the civic dation. The key is an appropriate balance of sector desperately needs additional funding payout and mission investing informed by the and that tax-exempt foundation dollars have metrics established here.

82 Chapter IV: Commitment

[B]y warehousing endowments, foundations defer funding today’s issues for the presumed benefit of funding tomorrow’s. As a result, we all face the opportunity cost of leaving today’s problems unsolved, and, while we may have a difficult time calculating it, there is certainly a considerable cost in doing so.

—William M. Dietel, Former Chair F.B. Heron Foundation316

he purpose of the tax exemption that private foun- ble purposes. That is what the tax subsidy is for.”318 Tdations enjoy is to enable them to meet their char- Researchers Akash Deep and Peter Frumkin take the itable goals and serve the public interest. When foun- concept further and assert that taxpayers are subsidiz- dations warehouse assets instead, they eschew their ing future philanthropic giving. As they note, “When charitable purpose at the expense of taxpayers. a foundation is created today, the burden of lost tax Foundation perpetuity has been the central issue in revenue is borne by citizens in the form of a tax discussions regarding foundation payout policies, and expenditure.”319 investment decisions traditionally have been made The adoption of the legally mandated minimum with a singular goal of increasing foundation assets. level of charitable contributions as a foregone maxi- These approaches are shortsighted and fail to realize mum results in a significant opportunity cost: it the significant potential of foundation assets to make ignores pressing social needs today and diminishes positive contributions to society. institutional philanthropy’s potential impact to maxi- Diverse observers have commented on these mize its social benefit. When an institutional grant- issues. According to Arthur Schmidt, founder of maker questions seriously the underlying principle GuideStar, the proportion of assets that are con- that drives its payout policy, it has the potential to tributed as grant dollars to maintain a foundation’s tax maintain its own strategic interests while engaging exemption is “not determined by need or opportuni- simultaneously in bold, innovative ways to maximize ty; it is determined only by an arbitrary, statutory pay- the social benefit of philanthropic giving. Reaching out threshold.”317 Steven T. Miller, commissioner of and maintaining a generous level of payout with a the Tax Exempt and Government Entities Division of minimum of 6 percent dedicated to grants, ensuring the IRS, articulated the purpose of the tax exemption that foundation assets are invested in alignment with granted to the U.S. civil society sector when he said its mission, and making investments that maximize that “every charity should make responsible and the social value of institutional philanthropy are three appropriate use of its resources to achieve its charita- steps integral to a needed paradigm shift in financial

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 83 National Committee for Responsive Philanthropy

practices that allow a foundation to make the most bold response that demonstrates how an exemplary effective use of its assets and resources. grantmaker, regardless of the perpetuity issue, can The total value of foundation assets obviously fluc- and should respond to economic turmoil. tuates over time, based on many factors. However, This criterion applies primarily to independent assets grew to $670 billion in 2007320 and generally foundations, where the concern over warehousing have shown a rapid and steady progression upwards tax-exempt dollars is greatest. Most grantmaking pub- over time. As Sarah Englehardt, then-president of the lic charities—such as community foundations, public Foundation Center, stated in the press release accom- foundations and United Way chapters—pay out at panying the 2008 forecast, “Foundations are some- rates well above 6 percent in grants.322 Mission times confused with individual donors in how their investing still is an important concept for these enti- giving will respond to economic fluctuations. In fact, ties to consider, but there is less concern that a sub- foundations—especially the larger, endowed grant- stantial portion of their assets is not being put toward makers—often engage in long-range planning to a charitable purpose than with some private founda- ensure that they can maintain relatively stable levels tions. This chapter first addresses payout and then the of support for their grantees, regardless of periodic ways in which foundations can serve their missions dips in their assets.” Bill Gates, co-chair and trustee of through their investment decisions. the Bill & Melinda Gates Foundation, addressed directly the impact of the current economic crisis on the foundation’s payout rate. In his first annual letter PAYOUT published on the foundation’s website, he stated, Payout has been a frequent subject of debate and con- “During the past five years, as the foundation was tinuing dialogue within the philanthropic field. Currently, a private foundation is required As the stock market rose and our understanding of the needs deepened, to spend a minimum of our Board voted to raise our annual payout to 10 percent, raising 5 percent of the fair our program grants to about $1.2 million per year, double the rate of most market value of its total foundations. Even after the stock market turned down in the early part investment assets annually.324 This includes of this decade, we reaffirmed our commitment to our grantees by continuing grants made to nonprof- to spend at the same level, thus raising our payout to about 12 percent per it organizations and year. In recent years, we have realized that such a high payout is not qualifying administra- sustainable in the current climate. We have reevaluated yearly, and continue tive expenses. The 5 percent minimum was to try to pay out between 7 and 8 percent. However, the markets are so established in 1976 and volatile that we will likely have to continue this frequent reevaluation going since then many foun- forward. The challenge is always to maximize our impact on the issues dations have adopted we care about while still enabling us to exist in the longer term. the minimum as a de facto maximum. Still, there are a sizable num- 323 – Martha A. Toll, Executive Director, Butler Family Fund ber of exemplary foundations, particularly growing, we spent a bit over 5 percent of its assets newer and smaller foundations, that pay out at rates each year in addition to the gift from Warren. There is higher than the legally-mandated minimum. nothing magic about the 5 percent figure, except that it is the minimum required by the IRS. Our spending Policy history regarding payout in 2008 was $3.3 billion. In 2009, instead of reduc- In 1916, lawmakers and the public were concerned ing this amount, we are choosing to increase it to that private foundations were fronts for business $3.8 billion, which is about 7 percent of our enterprises and were shunning their charitable mis- assets.”321 Although the Gates Foundation does not sions in favor of warehousing foundation assets. In seek to exist in perpetuity, this is precisely the type of response, the Walsh Commission was established fol-

84 lowing a congressional request to study the socio- QUALIFYING DISTRIBUTIONS AND PAYOUT economic influence of large foundations. The Walsh Commission proposed a ban on foundation perpetu- Because of the IRS’s current policy and expiration ity, but Congress did not act.325 of the Deficit Reduction Act, most foundations By the early 1960s, the foundation world was include numerous expenses as part of their quali- growing at the rate of 1,200 new organizations annu- fying distributions, detailed in the list below. While ally.326 In 1964, the Senate Finance Committee asked IRS form 990 PF lists several types of allowable the Department of the Treasury to investigate abuse in administrative expenses, a foundation does not the field. The investigation found a relatively low level necessarily count all expenses of a certain catego- of abuse and recommended a minimum payout rate ry as designated for its charitable purpose. Below as a regulatory response to allay government and pub- is a list of allowable expenses that a foundation lic concern. The Treasury noted in its report that the can count toward its qualifying distributions: public should be able to assume that the charitable deductions foundations enjoy is being offset by the > Compensation of officers, directors, trustees, use of the funds to benefit the public good. When pri- etc. vate foundations instead retain the funds for “indefi- > Other employee salaries and wages nitely long periods,”327 the public good suffers. > Pension plans, employee benefits Congress took no legislative action. > Legal fees In 1969, Sen. Russell Long (D-La.), then chairman > Accounting fees of the Senate Finance Committee, proposed a 46 per- > Other professional fees cent tax on foundation income and a ten-year time > Interest limit on foundations. In response, John D. Rockefeller > Taxes III and other prominent philanthropists established > Occupancy the Commission on Foundations and Private > Travel, conferences and meetings Philanthropy (informally known as the Peterson > Printing and publications Commission after its chair, Peter G. Peterson) to serve > Contributions, gifts, grants paid as an advocate on behalf of private foundations. The > Set-asides commission researched philanthropic giving in > Program related investments Senator Long’s hometown of New Orleans and found that the majority of foundation grants were provided It also is important to note what a foundation can- to the Catholic Church, local universities and chari- not count toward its qualifying distributions. ties. The commission developed alternatives to a tax Congressional rules disallow investment expens- on foundations and Peterson convinced Long that es a foundation incurs from managing its endow- imposing a high marginal tax rate on foundations ment. Such fees include salaries or board meet- would limit the funds available to help local residents, ing costs for investment management purposes; particularly lower-income residents, leading Long to custodial fees; brokerage fees; and investment advocate a minimum payout level instead.328 The Tax management fees. Excluding investment manage- Reform Act of 1969 was an outcome of the commis- ment fees, all foundation administrative expenses sion’s findings. Congress mandated a minimum pay- count toward payout if they are deemed “neces- out rate for private foundations as a result of this act. sary and reasonable.” The Tax Reform Act required private foundations to pay out whichever was greater—their entire adjusted net income or 6 percent of net investment assets. The entire net adjusted income or a fixed 5 percent of net 6 percent figure, however, was variable and linked to investment assets. money rates and investment yields. Using this formu- During the debate leading up to the 1976 change, la, the payout rate in 1976 would have reached 6.75 Eugene Steuerle wrote that the initial proposal in the percent of total foundation assets, a level that law- Tax Reform Act of 1969 had been to require a flat 5 makers had not considered in 1969.329 In response, percent payout rate. The Senate rejected this rate and Congress eliminated some of the variability in this requested that it be 6 percent, which was included in equation and set minimum payout at the greater of the final law along with the provision for rate adjust-

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 85 National Committee for Responsive Philanthropy

ment. Arguments against the 6 percent rate included pay out 5 percent of their investment assets. In 1984, “invasion of corpus” and that market conditions and the Deficit Reduction Act temporarily limited adminis- rates of return at the time did not support such a trative expenses to 0.65 percent of foundation assets; rate.330 Steuerle noted that “the answer to the empiri- this reflected a concern that a foundation practically cal question [of the actual rate of return received by could meet its minimum payout simply by counting its foundations] provides information by which the policy qualifying administrative expenses. The law also put question can be addressed, but the empirical question the requirement that administrative expenses be “rea- does not determine the answer to the policy ques- sonable and necessary” into the statute. The 0.65 per- tion.”331 Other critics have noted that the 5 percent cent maximum administrative expenses requirement rule is related less to economic analysis and empirical expired in 1990, allowing institutional grantmakers to data than to prolonged political bargaining.332 include a range of expenses in determining their qual- The Economic Recovery Act of 1981 eliminated the ifying distributions. “greater of” provision, because requiring foundations Studies demonstrate that 5 percent is not the high- to pay out their entire income would reduce real asset est sustainable payout rate and that foundations could value over time.333 The law ended variable payout pay 7 or even 8 percent and maintain their endow- rates and since then foundations have been required to ments.334 NCRP acknowledges that some well-inten-

TABLE 4.1 MAJOR POLICY PROPOSALS ON PAYOUT

YEAR POLICY HISTORY RESULT 1916 Walsh Commission: No congressional action Proposed ban on perpetuity 1964 Department of Treasury investigation Relatively little abuse found; no legislation 1969 Sen. Russell Long proposes ten-year Rockefeller and other private philanthropists establish maximum life span and a 46 percent Peterson Commission to fight Long’s proposal tax rate on private foundations Peterson’s findings convince Long to drop proposed tax rate and ban on perpetuity 1969 Peterson Commission findings Variable minimum payout established as the greater of: lead to Tax Reform Act of 1969 a) Entire net adjusted income or b) 6 percent of net investment assets, adjusted annually based on money rates and investment returns 1976 Minimum payout reached higher Variable minimum payout established as the greater of: rates than anticipated a) Entire net adjusted income or b) 5 percent of net investment assets, with no variability 1981 Economic Recovery Act of 1981: Minimum payout established at 5 percent Requiring foundations to pay entire of net investment assets net assets would erode real value of corpus over time 1984 Deficit Reduction Act of 1984: Qualifying administrative expenses limited Temporarily limited administrative to 0.65 percent of assets expenses to 0.65 percent of assets; put Expired in 1990 requirement that administrative “Reasonable and necessary” requirement expenses be “reasonable and necessary” remains in statute into statute. 2003 Charitable Giving Act of 2003 (H.R. 7): No congressional action Would require foundations to exclude administrative costs when calculating qualifying distributions.

86 tioned leaders in the sector disagree with these find- example, a recent article highlights the limitations of ings and believe honestly that 5 percent is the highest perpetuity and the assumption of the 5 percent as a sustainable payout rate. However, NCRP and others foregone maximum payout rate. In raising pertinent believe higher payout and perpetuity are not mutual- issues for any grantmaker to consider when discussing ly exclusive. Unless Congress changes the law on this issues of perpetuity and mission, Arthur Schmidt sug- issue, it is up to individual grantmakers to consider gests maximizing the social value of philanthropy as carefully their payout policies. an alternate core guiding principle for this issue.338 In the early 21st century, Congress again consid- This analysis also notes that once qualifying distribu- ered changing the statute. The Charitable Giving Act tion expenses are accounted for in payout, the aver- of 2003, also known as H.R. 7, included a provision age foundation pays out 4 percent in grants. that would have required private foundations to Three studies that analyzed actual foundation pay- exclude operating and administrative expenses when out data resulted in somewhat contradictory findings. calculating annual expenditures to meet the mini- Deep and Frumkin examined the average payout rates mum 5 percent payout rule. According to NCRP cal- and total return on investment for 169 foundations culations at the time, this statutory change would from 1972 to 1996. They found strong convergence have represented a 0.4 percent increase in grantmak- around 5 percent payout as a de facto maximum; the ing, thereby infusing an additional $4.3 billion annu- sample averaged 4.97 percent payout, despite an aver- ally in grant dollars into the nonprofit sector.335 The age annual return on foundation investment assets of Foundation Center issued a statement in response to 7.62 percent. Similarly, Cambridge Associates found NCRP’s claim, estimating that the actual amount that in a sample of 33 Michigan foundations, the pay- would be less than half that. Yet, even using the out rate was 4.86 percent from 1982–1997. This fur- Foundation Center’s own calculations, had the ther illustrates the convergence around the 5 percent increase been a more modest $2 billion, it still would minimum as a predetermined maximum following the have represented a 17 percent increase in foundation institution of the statute. Richard Sansing and Robert giving to nonprofits.336 Although the Senate passed Yetman’s sample comprised 4,239 individual founda- the companion bill, the CARE Act (S. 476), Congress tions—representing nearly 60 percent of all founda- did not act on the payout rule prior to the close of ses- tion assets—and focused on the bull market period of sion and there was no change to the current statute. 1994–1998. They found that their sample paid out an Payout has been the focus of foundation-related pol- average of 6.45 percent of investment assets annually, icy discussions for nearly 100 years. Table 4.1 summa- while the assets of foundations in their sample grew at rizes major policy proposals related to payout, the about 17 percent per year. rationale behind each and the outcome of the proposal. DeMarche & Associates analyzed investment returns for a hypothetical foundation and concluded Studies of foundation payout: influencing factors, that 5 percent may be too high a payout rate for a contrasting viewpoints foundation to exist in perpetuity.339 Cambridge While there appears to be strong convergence around Associates also concluded that their findings support- the 5 percent minimum as a foregone maximum ed a maximum 5 percent payout. These findings merit among many foundations, there is a movement in the some robust debate and frank criticism. Foundation sector by some individual foundations to link payout growth during the years in which the DeMarche study with mission achievement, often resulting in payout was conducted was so robust that the researchers rates significantly higher than the minimum.337 But acknowledged that foundations could have increased the aggregation of payout data that frequently include their payout rates to 6.5 percent with minimal to no spend-down foundations, grantmaking institutions impact on their corpuses. Moreover, when Perry with living donors and operating foundations along Mehrling340 applied his own methodology to with private foundations often leads to the perception DeMarche’s hypothetical foundation, he found that of a higher rate of grants paid out than actually is true. over the course of 20 years a payout rate as high as 8 In other words, the higher payout rates maintained by percent would have maintained the foundation’s asset the many types of foundations aggregated in most size. Yet, DeMarche & Associates insisted that 5 per- payout analyses suggests higher than actual payout cent was the maximum sustainable payout rate for rates maintained by most private foundations. For any foundation seeking to exist in perpetuity.

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 87 National Committee for Responsive Philanthropy

The studies above focused on determining an An important corollary to the third barrier noted appropriate level of foundation payout based on above is that it not only has negative consequences investment returns and existing payout habits. Paul for addressing social needs today but also increases Jansen and David Katz341 applied an investment con- the future social costs for when philanthropy does cept known as discounting to show that foregoing turn its attention to those problems.344 As Schmidt work on current social problems in favor of storing states, “Any nominal appreciation in the value of a wealth for future grants is a bad investment strategy perpetual endowment must be discounted significant- for foundations and reduces the value of the original ly by the cost society incurs (a social cost of capital) tax-deductible donation. They calculated the present from the human suffering, environmental degradation value of future grant investment returns by discount- and other problems left unresolved today.”345 ing the returns at a certain rate. From the resulting In 1999, during the National Network of data, they argued that by paying out at just 5 percent, Grantmakers’ (NNG) “1 Percent for Democracy” foundations are foregoing contributing more today campaign, NNG asked its members and all other and assuming future social problems will be more foundations to increase grants payout by 1 percent. compelling, but that this is an insufficient justification NNG found that nearly 83 percent of its 400 individ- for low payout rates. ual members agreed that payout should increase, but As Mehrling and others have pointed out, treating only a small majority believed that their foundation the legal minimum as a maximum makes it appear that leadership would support such a change.346 This, many foundations are doing exactly what Congress combined with the first barrier identified by Deep and wanted to prevent when establishing the minimum— Frumkin, suggests the need for open dialogue within warehousing wealth in perpetuity, thereby defeating individual foundations and across the foundation “the real social purpose of their privileged tax sta- world to address the ways in which payout policy tus.”342 Deep and Frumkin interviewed foundation affects mission achievement and affects the bottom leaders to understand why more foundations do not line of philanthropy: impact. pay out at rates higher than 5 percent. Their findings identified three obstacles to payout differentiation: The foundation excise tax: a disincentive to increasing payout 1. Managerial constraints within staff and board, A persistent and salient policy issue related to payout such as the difficulty of quantifying return on is the foundation excise tax. Foundations largely are social investment compared with that of the invest- exempt from taxation but they are required to pay ment portfolio; certain taxes, including an excise tax on investment 2. Conceptual obstacles, such as difficulty of calcu- income. The current structure of the excise tax is two- lating current social benefits versus future social tiered: the tax rate is 1 percent but rises to 2 percent benefits; and for five years if the foundation distributes less in one 3. Current tax treatment of investment income (the year than the average of the preceding five years. Two excise tax structure). researchers clarify the consequences of this structure with an example: “Suppose over the preceding five More recently, Schmidt highlighted three barriers years, the foundation spent on average 6 percent of implicit in the current perpetuity paradigm as limiting its investment assets in qualifying distributions. This institutional philanthropy’s social value and strategic year the foundation has investment assets of $100 potential: million and net investment income of $8 million. If this year’s qualifying distributions are less than 1. Immunity from market and public pressures for $6,080,000, then the excise tax is $160,000; if qual- accountability; ifying distributions are $6,080,000 or more, then its 2. Diminished ability to engage foundation tax is $80,000.”347 In other words, should a founda- resources, fiscal and human, for optimal resource tion wish to temporarily pay out at a higher rate, the deployment; and foundation can expect to pay more excise tax if it 3. Negative impact on the real social value of institu- reduces its payout in future years. The variable excise tional philanthropy’s assets, resulting in social costs tax thus serves as a disincentive for a foundation to to the charitable sector and society at large.343 increase its payout rate.

88 Advocates of retaining the excise tax have tions to meet their own needs. In 1948, nine years requested that it be used for its original purpose: to before the deadline Rosenwald had imposed, his fund IRS oversight of the charitable sector and data foundation closed its doors.355 While the decision services.348 Others argued that because the excise to spend down is not unique, the issue of payout tax is both a disincentive for varying payout rate and and the adoption of 5 percent as a maximum rather is not being used for its original intent, it should be than its intended minimum is one that continues to eliminated.349 Audit coverage of the sector is histori- spark dialogue. cally low, despite the fact that the income from the excise tax— While the decision to spend down is not unique, the issue of estimated at $500 million annually350—far payout and the adoption of 5 percent as a maximum rather exceeds the budget of the IRS Exempt than its intended minimum is one that continues to spark Organizations Division. The money is diverted dialogue. … [T]radition and a lack of consensus in the to the general treasury, and the remaining foundation world are strong barriers to changes in payout policy. funding is not sufficient for the IRS to perform its enforcement duties.351 The Council on As discussed above, tradition and a lack of consen- Foundations, NCRP, Independent Sector and the sus in the foundation world are strong barriers to Aspen Institute Nonprofit Sector and Philanthropy changes in payout policy. In a 2004 discussion of pay- Program all have urged Congress to make fixing the out moderated by Michael Klausner, many foundation excise tax structure a legislative priority.352 leaders emphasized the importance of matching payout to mission. John Healy, formerly of The Atlantic Decision-making factors for payout: Perpetuity, spend- Philanthropies, criticized foundations for taking per- down and mission petuity as “an article of faith,” adding that The Atlantic Often, it is the donor’s intent to provide a lasting Philanthropies’ mission “implies a sense of urgency social benefit to the communal social problems, which compels us to spend down rather than seek which are interconnected, structural, complicated perpetuity.”356 Others noted that when the donor and impossible to solve in a lifetime. Thus, many establishes the foundation with the intent of con- contend that a foundation should be prepared to tributing to society perpetually, the foundation is work toward its mission in perpetuity.353 Additionally, compelled to adopt a lower payout rate. Additionally, some argue that professional foundations add value long-term problems lead a foundation to seek perpe- in their grantmaking through their expertise, which tuity in order to provide lasting support for organiza- makes them more efficient and effective grantmak- tions working to solve those problems. ers than foundations that exist for a relatively short Tying foundation mission explicitly with payout period of time.354 NCRP recognizes the value of policy appears to be increasing across the sector. perpetual foundations to civil society and our Spending down seem to be growing as thousands of nation as a whole. new foundations are formed annually. The Bill and A large number of foundations, however, are Melinda Gates Foundation, with its massive endow- choosing to spend down their endowments in lieu ment, has committed to sunsetting within 50 years of of perpetuity. Julius Rosenwald, the former presi- the death of its last founding trustee.357 The Gates dent of Sears, Roebuck & Co., was one of the first Foundation’s grantmaking accounts for about one in philanthropists to question the assumption of foun- every ten philanthropic dollars.358 The John M. Olin dation perpetuity implicit in much of the sector. He Foundation was established in 1953 by John M. Olin, wrote that the goal of perpetuity for private founda- president of the Olin industries, a chemical and muni- tions indicated a lack of confidence in the future, tions manufacturing corporation. Olin committed to and he had absolute confidence in future genera- spending down his foundation during his lifetime; the

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 89 National Committee for Responsive Philanthropy

Olin Foundation made its last grant in 2005. These MISSION INVESTING examples demonstrate that spending down is a valid Mission investing (MI) is an effective way for founda- option for a foundation to consider when linking pay- tions to leverage their non-grantmaking assets to serve out policy with its mission. their own missions and benefit society. In this criteri- In Beyond 5 Percent, Heidi Waleson examined on, MI is the term used to denote all aspects of a com- 13 foundations that pay out above the federal mini- prehensive mission investment strategy: investment mum; she termed 5 percent payout policies “tradi- screening, shareholder advocacy and proxy voting, 359 tional” foundation practice. Many foundations and proactive mission investments. This section featured in the report have chosen to spend down in reviews how foundations can leverage their endow- the name of mission and in accordance with donor ments and power best as shareholders to achieve their missions and maximize their contributions to It makes no sense to use 5 percent of your assets to try the greater public good. At the F.B. Heron to promote something, while the other 95 percent might be Foundation, which cur- doing something totally contrary. We try to use rently is investing 26 percent363 of its assets 100 percent of our assets to promote our values. in mission investments (MIs), the guiding question that the board – Victor De Luca, President, Jessie Smith Noyes Foundation362 adopted when it began developing its MI program was, “Should a intent, granting between $200 million and $800 mil- private foundation be more than a private investment lion within a few decades. The Lewis B. and Dorothy company that uses some of its excess cash flow for Cullman Foundation, for example, is committed to charitable purposes?”364 ceasing operations within one year of the founder’s death. Cullman established his foundation believing History of mission investing that it should benefit society in his lifetime and that The origins of modern socially responsible investing future generations would step up to address future and shareholder activism can be traced back to the social problems. As he put it, “I don’t care what peo- early 1970s. The first mutual fund to screen for ple say about me when I’m dead. I won’t be around social issues was started by a group of Methodist to hear it. Why not get the joy out of spending your clergy in 1971, prior to the Episcopal Church’s dis- 360 money while you’re alive?” The Lewis B. and investment work in South Africa. In 1973, the South Dorothy Cullman Foundation paid out more than 30 Shore Bank, now ShoreBank, became the United percent of its non-charitable use assets in 2006. Also States’ first private development bank. ShoreBank featured in Waleson’s report, the Whitaker was created to demonstrate the important role that a Foundation made the decision in 1991 to help start regulated bank could play in revitalizing communi- and grow university biomedical engineering depart- ties marginalized by other financial institutions. It ments, spending more than $800 million on achiev- was located in a neighborhood on the south side of ing its mission and closing down in 2006. This infu- Chicago that was dealing with race and class ten- sion of funding is credited with jump starting the sions at the time. Today, ShoreBank is an internation- field of biomedical engineering, which now has 80 ally-recognized socially responsible investor. It 361 university departments across the country. This operates in multiple U.S. cities and internationally example seems to supersede some of the arguments and its mission states that it “invests in people and for preserving foundation assets to address future their communities to create economic equity and a problems. Many of the foundations in the study healthy environment.” The Episcopal Church used enjoyed greater flexibility in spending and financial shareholder resolutions in the 1970s to pressure management when they focused on mission companies with business in South Africa during achievement rather than perpetuity. Apartheid to cease operations there.365

90 Shareholder activism through resolutions and housing and providing direct loans to nonprofit proxy voting long has been the realm of pension organizations.371 funds since the ERISA (Employee Retirement Income Security Act) Act of 1974 cited proxy voting and the There is a lack of robust data regarding the extent monitoring of non-financial information as part of to which foundations engage in mission investing. good management.366 However, FSG Social Impact Advisors conducted a During the 1980s, social investment grew rapidly study that examined 92 foundations to analyze MI in the wake of insider trading and environmental among foundations. In Compounding Impact: degradation scandals. In 1985, the Social Investment Mission Investing by U.S. Foundations, Kramer and Forum documented $40 billion in professionally Cooch defined “mission investing” as “financial managed investments with social criteria; by 1991, investments made with the intention of (1) furthering that figure had grown to an estimated $625 billion.367 a foundation’s mission and (2) recovering the princi- Organizations pressured by the Episcopal Church dis- pal invested or earning financial returns.”372 Mission invested in South Africa’s companies to demonstrate investments were grouped into two main categories: their values through their investment decisions. Socially responsible investing (SRI) is rooted in a 1. Market-rate mission investments: Investments that moral concern for the way in which pools of capital account for social and environmental considera- are invested and often is described as investing with a tions in which a foundation seeks financial returns “double bottom line.”368 The Social Investment Forum comparable to average risk-adjusted returns of Foundation defines the double bottom line as “[a]n investments made without regard for such con- investment seeking financial and social returns.”369 cerns. 2. Below market-rate mission investments: Foundation Foundations and mission investing asset investments that seek financial returns below As with SRI,370 mission investing seeks a double bot- the risk-adjusted average returns. A foundation tom line. In the case of institutional philanthropy, a invests its assets in this way when the goal of the grantmaker demonstrates its commitment by leverag- investment cannot be realized using market-rate ing its investment assets to achieve its mission using investments or when it opts to use its non-grant- MI. Screening, shareholder advocacy and proactive making funds for charitable objectives over earn- mission-investing may be used together or alone. For ing a profit. Private foundations also may claim example, screening investments is a simple first step mission-related investments such as program relat- that all foundations easily can take. The three strate- ed investments (PRIs),373 which count for qualify- gies of comprehensive mission-investing in exempla- ing distributions.374 ry philanthropy are: The study found that only 2.6 percent of private 1. Screens: Screening traditional investments for foundation assets were allocated to mission invest- social or environmental factors can help a founda- ments. The authors contend that despite the lack of tion seek corporations whose practices do not con- robust data and reporting on mission investing in the flict with its mission. Screens can be either positive foundation sector, their findings are indicative of sec- or negative; that is, a screen either can seek out a tor-wide trends in this practice. This is partly because certain trait such as paying employees a living the subsample that provided investment details repre- wage or it can avoid a certain trait such as compa- sents 12 percent of all U.S. foundation assets; the sub- nies that produce tobacco products. sample that participated in qualitative interviews 2. Shareholder advocacy: Foundations can leverage accounts for 20 percent of foundation assets.375 stock portfolios to introduce shareholder resolu- However, the study selected foundations that were tions and to vote proxies. Foundations also can known to engage in PRI and MI or otherwise recom- involve their grantees when appropriate to mended it. Complementing this study with prelimi- improve corporate practices. nary data from a Council on Foundations survey, 3. Proactive mission investing: Proactively seeking which found that over 82 percent of foundations “do out investment opportunities that advance a foun- not take social, environmental or other nonfinancial dation’s mission such as investing in affordable factors into account when managing … financial

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 91 National Committee for Responsive Philanthropy

A PROMINENT GRANTMAKER ADDS NEW (CDVCs) through CDFIs as part of a mission investing MOMENTUM TO FOUNDATION MISSION program. The CDFI Data Project found that CDVCs INVESTING had a gross internal rate of return of 15.5 percent in FY 2006. By comparison, the 12-month total return The W.K. Kellogg Foundation had a $9 billion for the S&P 500 in December 2006 was 15.79 per- endowment in 2008 and devoted $100 million cent.379 Further, Cooch and Kramer analyzed returns to mission investments in the United States and on MI loans for foundations in their study. They found Africa. In Kellogg’s case, the development of a that 75 percent of the 28 foundations able to provide mission investment team, comprising program data on their loan mission investments had a zero and investment staff, occurred quickly following default rate. When three outliers, foundations with initial board conversations in January 2007. high default rates, were removed, this figure jumped Three months later, the board agreed to the to 96 percent.380 $100 million allocation, after the team found Individual foundations have shared their success in ample opportunities for mission investments in MI as a way to encourage their peers to follow suit. In multiple asset classes. One staff member said, 2003, the F.B. Heron Foundation, which allocated 19 “Few ideas have resonated more completely or percent of its assets to mission investments that year, more quickly than helping to closely connect achieved a total return on investment of 21.07 per- investments to our mission.”391 cent, which was at or above the median rate of return for traditional investments made by foundations.381 In December 2003, the S&P 500 posted a 12-month return of 28.69 percent.382 By 2006, the F.B. Heron assets,”376 suggests that a majority of foundations do Foundation had allocated 24 percent of its assets to not account for mission in their investment decisions. MI383 and began aggressively encouraging peers to In light of this, the relevant question for exemplary adopt an MI strategy. It also pioneered the philanthropy is why so few foundations match invest- Community Investment Index, a positively screened ment strategy with mission. investment fund with companies that support lower- A significant barrier to higher levels of philan- income communities through workforce develop- thropic engagement in MI is the perception that only ment, wealth creation and corporate philanthropy. larger foundations have the human and financial In April 2007, the F.B. Heron Foundation partnered capacity to align investments with mission. However, with the Annie E. Casey Foundation, the Meyer the FSG Social Impact Advisors study referenced Memorial Trust Foundation and Cambridge above also found that 30 percent of all private foun- Associates, a reputable independent investment advi- dations making mission investments had total assets sor, to launch the “More for Mission Campaign.”384 of less than $50 million and 9 percent had less than This campaign challenges foundations to allocate, in $10 million in assets. Further, smaller foundations the aggregate, 2 percent of their assets for mission comprised 44 percent of all new mission investment investments that would generate some $12 billion dollars in 2005.377 Mission investment intermediaries more in foundation financial commitments by align- can help foundations with little or no staff to develop ing mission with investing practice. The “More for the expertise and capacity to engage in MI. Mission Campaign” also seeks to build the funder Some foundation leaders may view MI as finan- knowledge base of mission investing; to generate a cially riskier and as providing below-market returns. network of foundations committed to mission invest- However, data from individual foundations and from ing; and to contribute robustly to the knowledge base the Community Development Fund Index dispel this for investors to leverage their non-grantmaking assets perception. The Fund Index publishes data annually in support of mission.385 Cambridge Associates on the aggregate accomplishments of its funds, which formed the Mission Investing Group with the support provide financial services to traditionally underserved of these three foundations to provide technical assis- populations—70 percent of Community Development tance to institutions initiating an investment strategy Financial Institutions (CDFI) clients were lower that aligns with mission. As the F.B. Heron income in FY 2006.378 Grantmakers can invest in Foundation’s president Sharon B. King states, Community Development Venture Capital funds “Harnessing the power of the capital markets for pos-

92 itive social and environmental impact is essential. It is directors often are too content to adhere strictly to a appropriate that tax-advantaged institutions, such as “prudent man” approach, which dates back to foundations and endowments, begin to invest for mis- Harvard University in the 1800s. This approach said sion in a thoughtful and rigorous way.”386 Indeed, the that trustees of a foundation or endowment should act F.B. Heron Foundation’s current goal is to increase its as a “prudent man,” now a “prudent investor,” would mission-related investments to 50 percent of its assets when investing his or her own funds.389 The assump- by the end of 2010.387 tions implicit in this behavior are reductionist: they presume that a trustee is a rational economic actor The case for increased mission investing with full access to comprehensive knowledge about The barriers to mission investing are similar to those the entire universe of investment options available to for increased payout: a lack of motivation at the institutional grantmakers. Moreover, unlike the “pru- individual foundation level and a knowledge gap dent man,” exemplary institutional philanthropy seeks related to the tools needed to implement a mission a double bottom line return, financial and social. At a investing program. Lance Lindblom, president and minimum, a foundation is obliged to carry out its stat- CEO of The Nathan Cummings Foundation, identi- ed mission in addition to a social mission that aligns fies lack of integration and communication within with or supersedes its assessment of financial returns foundations as a barrier. “The practice in founda- from its investment strategies. tions has typically been for the program areas to The Uniform Management of Institutional Funds focus on mission and the investment committee to Act of 1972 acknowledged that some risk is unavoid- focus on financial returns, with little—if any— able in any investments. Risk tolerance is both nec- awareness between these silos. And yet, social and essary and acceptable so long as the risk does not put economic justice requires an integrated society. the endowment as a whole in jeopardy. The argu- Corporations and business cannot be separated from ment that mission investing is too risky does not concerns about health, the environment, the arts, stand when one considers that foundations have about how we live our lives.”388 invested in other unconventional stocks such as Some foundation leadership may not be open to hedge funds, private equity, international stocks and mission investing; this stems primarily from concerns natural resources.390 When there is open communi- about fiduciary responsibility. Highly risk-averse, cation among board and staff leadership, grantmak-

THE IMPACT OF PROXY RESOLUTIONS

Sometimes, investment managers pork processor with an abysmal Sustainability Reporting Guidelines. within foundations may notice dis- environmental record. In response, Because the Securities and crepancies or conflicts of interest Williams worked with Cummings Exchange Commission ruled that between program goals and invest- Foundation president and CEO Smithfield could exclude the resolu- ment decisions. In 2002, Caroline Lance Lindblom to request a share- tion from the proxy vote, it did not L. Williams, chief financial and holder resolution requiring produce the report, citing the rigid investment officer for the Nathan Smithfield Foods management pre- nature of the guidelines.393 Yet, the Cummings Foundation, noticed that pare a report describing the envi- proxy had significant impact on the foundation had given sizable ronmental, economic and social Smithfield’s voluntary adoption of grants to organizations working to impacts of its operations.392 The many elements of the guidelines hold big agribusiness environmen- Cummings Foundation was joined and increased transparency as evi- tally accountable, focused on the by Amalgamated Bank and the denced by its production of the hog industry. At the same time, the Sierra Club in issuing a proxy state- 2003 and 2004 Stewardship foundation held over $700,000 in ment asking Smithfield for a report Reports, and the 2005 and 2007 shares of Smithfield Foods, the to measure company compliance Corporate Social Responsibility world’s largest hog producer and with the Global Reporting Initiative Reports.394

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 93 National Committee for Responsive Philanthropy

ers have found success engaging in MI and fulfilling the long term than one that fails to account for the their fiduciary responsibilities. “social cost of capital” in linking this investing strate- 399 Although some foundations identify risk-aversion gy with its decision to continue in perpetuity. as a reason not to engage substantively in MI, if a foun- In addition to screening investments, a foundation dation does not screen its investments, it runs the risk can establish proxy voting policies rather than auto- of public embarrassment should discrepancies like the matically voting with management. Foundation lead- Cummings example not be dealt with transparently. In ership may be concerned that voting against manage- 400 2007, the Los Angeles Times investigated the investment will lead to lower returns. However, studies ment practices of the Bill and Melinda Gates show the results of shareholder resolutions and Foundation and found that it had large investments engaged proxy voting: honest and reasonably com- that ran contrary to the foundation’s global health pensated corporate management, socially responsible efforts.395 Examples of undermining the foundation’s corporations and independent boards of directors 401 long-term goals for short-term financial gain included lead to stronger financial returns. significant investments in pharmaceutical companies Some grantmakers may think that shareholder res- that kept the price of antiretroviral drugs prohibitively olutions are ineffective. However, a resolution does high for patients in the developing world where the not have to gain a majority vote to prompt manage- foundation does much of its AIDS work, and major ment to act. Modest minority shareholder votes are polluters in developing countries such as oil compa- responsible for such changes in corporate practice as nies that contributed to health problems among local curbing predatory lending, adopting Coalition for populations. The Bill and Melinda Gates Foundation Environmentally Responsible Economies (CERES) owns more than $450 million in stocks in pharmaceu- environmental principles and increasing recycling 402 tical companies that are considering shareholder reso- rates. A survey by the Chronicle of Philanthropy lutions to increase the availability of antiretroviral found that more than 25 percent of the largest private drugs in less-developed countries.396 Despite the neg- foundations have integrated environmental or social 403 ative consequences for the foundation’s public image screening in their investment strategies. Many from these conflicts of interests, a senior policy officer foundation leaders surveyed by the Chronicle stated at the foundation stated that the foundation does not that they used money managers as delegates for their believe it should involve itself in proxy voting because proxy voting decisions, citing lack of human and “we want people to understand that the people at the financial resources at their foundations to take on this 404 foundation are trying to figure out how to help the task. In contrast, Victor De Luca, president of the people in our areas of focus, and we don't spend our Jessie Smith Noyes Foundation told the Chronicle that time thinking about the investment portfolio.”397 The Noyes employees had reviewed close to 120 share- Gates Foundation holds its investment assets in the Bill holder proxy statements in 2005, with De Luca mak- and Melinda Gates Foundation Trust, a separate entity ing the final decisions and casting the votes him- 405 from the Bill and Melinda Gates Foundation. self. More recently, Noyes reported voting proxies Discrepancies between a foundation’s stated mis- in two portfolios that comprise close to 25 percent of sion and its fiduciary choices raise pertinent issues the foundation’s investments. In 2008, Noyes voted its 406 regarding whether or not it is investing in socially proxies with close to 300 companies. responsible manner that accounts for social and pub- The Educational Foundation of America (EFA) lic needs, not only short-term financial gains for an began using negative screens in 1994 and launched a individual endowment. In short, conflicts of interest shareholder activism campaign in 1999 to speed created by investment strategies negatively impact the Home Depot’s phase-out of old growth timber sales. social benefit of philanthropy’s capital to enhance the EFA filed the shareholder initiative, which had an common good today and in the future. As Arthur impact despite winning only 11 percent of sharehold- 407 Schmidt notes, “Despite all the good work that foun- ers’ votes, while providing support to environmen- dations do, their perpetuity-at-all-costs mindset tal nonprofits such as the Rainforest Action Network. ensures that their endowments will constitute a This dual approach—working from within as an depleting social asset.”398 An exemplary foundation investor and providing support to groups putting that engages in substantive mission investing is more external pressure on Home Depot—led to speedier 408 likely to preserve the social value of its endowment in implementation of the no old-growth policy.

94 Often, foundations lack the internal capacity to LEVERAGING NON-INVESTMENT ASSETS— manage investments, and hire professional firms PUBLIC BENEFIT instead. In such cases, it is imperative that foundation leadership work with the investment manager and In 2001, the Public Welfare Foundation in foundation program staff to ensure that the founda- Washington, D.C., relocated to the Shaw neigh- tion’s proxy voting policy is followed and to integrate borhood, donated space to Manna Community mission goals into investment strategy. Mission Development Corporation and created meeting investment intermediaries are one way in which spaces for nonprofit organizations. The founda- foundations with limited capacity can build a mis- tion then partnered with Manna to finance afford- sion investing program. The most common interme- able housing construction in the neighborhood. diaries are CDFIs, as discussed earlier. In 2005, they Relocating offices to blighted communities and achieved substantive measurable impact, all while providing office spaces to grantees are examples providing a return to investors. They financed busi- of leveraging non-grantmaking, non-investment nesses that created or sustained nearly 40,000 jobs; assets to advance foundation mission and facilitated the creation or renovation of more than enhancing the public benefit of philanthropy.410 55,000 units of affordable housing; provided more than 11,000 alternatives to payday loans; and helped establish 138,045 first-time bank accounts for lower- income individuals.409 Over the past decade, the number of foundations 2007, first began screening investments in the 1980s with mission investments has doubled and annual when the board raised the issue of investments in funds invested have tripled.411 As mission investing companies doing business in South Africa during expanded beyond the traditional PRI investors, Apartheid.414 The Fund provides one example of an including the Ford Foundation, the David and Lucile integrated approach to foundation MI. Needmor Packard Foundation and the John D. and Catherine T. now screens 100 percent of its investment portfolio. MacArthur Foundation, led in large part by newer In 2000, the foundation—which funds exclusively foundations such as the F.B. Heron Foundation, others community organizing groups—collaborated with have followed. Moreover, just as socially responsible grantees to introduce resolutions that supported investing is growing in the business world, current grantees’ campaigns directly. The fund also has a philanthropic interest in raising awareness of an insti- strong community development investment pro- tution’s investment decisions on environmental and gram, which has financed homes, provided social impact issues resonates with foundations microloans to impoverished families, developed whose missions seek to improve community-wide small businesses, created jobs and financed the con- benefits and outcomes. struction of community facilities.415 In 2007, An integrated approach to mission investing incor- Needmor had 14 percent of its assets invested in porates all three strategies: screened investments, market-rate community development programs. shareholder activism and proxy voting, and proactive Needmor’s mission-related investing has grown to mission investments. To incorporate MI comprehen- incorporate all three MI strategies. sively as part of a foundation’s investment strategy, a While several exemplary foundations are both foundation should develop board-level understand- making efforts to incorporate mission achievement ing, include investment and program staff, involve into asset management and also providing resources grantees in shareholder activism, and enlist experts to foundations interested in mission investing, mis- such as mission investment intermediaries to identify sion investing persists as a significant lost opportunity opportunities.412 As Luther M. Ragin Jr., vice president for foundations to enhance their impact. The tools to of investments for the F.B. Heron Foundation, put it, leverage assets beyond grantmaking, such as market- “The approach is not without risk. But if taking well- rate MI, mission investment intermediaries, and considered risks for public benefit is not the role of engaging in shareholder activism, all are readily avail- philanthropy, then what is?”413 able to institutional grantmakers. These are essential The Needmor Fund, a family foundation with an components of foundations ensuring that they are endowment of close to $30 million at the end of doing all they can to meet their missions.

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 95 National Committee for Responsive Philanthropy

SETTING THE BAR FOR PHILANTHROPY corporate, and community foundations’ expense and AT ITS BEST compensation patterns and the factors behind 417 Most foundations use only a tiny fraction of the finan- them.” The study analyzed data from the 10,000 cial assets at their disposal to achieve their missions. largest U.S. grantmaking institutions between 2001 As this chapter demonstrated, most foundations con- and 2003 and provides a rigorous analysis of various tinue “traditional policies” of paying out only 5 per- elements of the foundation world’s finances, includ- cent of their assets in grants and qualifying distribu- ing a range of financial measures that impact foundations each year and do not prioritize the potential tion expenses such as staffing levels and trustee com- 418 mission-advancing power of their investment assets in pensation. In the aggregate, total giving by inde- non-grantmaking ways. Consequently, a significant pendent foundations from 2001–2003 comprised opportunity for broad, long-term changes and $18.3 billion; total independent foundation assets advancing a foundation’s mission is lost. Foundations were $312.4 billion. The total number of independent 419 should dedicate substantial portions of their endow- foundations in the study was 8,876. Thus, the ments towards achieving their charitable purposes. aggregate amount of grants provided in the study’s By adopting 5 percent as the de facto maximum timeframe was 5.86 percent of assets. Because these payout rate, a grantmaker foregoes an opportunity to aggregate statistics include spend-down foundations increase its impact and demonstrate its commitment and foundations with living donors, the numbers must to using its tax-exempt dollars for a true charitable be interpreted with caution. Yet, coupled with the purpose. Because civil society sector grantees are the study’s findings that 29 percent of the 10,000 founda- means to deliver institutional philanthropy’s benefit to tions studied employ staff, which affects charitable the public, the focus should be on how much a fun- administrative expense to qualifying distribution der distributes in grants. Different types and sizes of ratios, these findings suggest that many grantmaking grantmaking institutions have variable administrative institutions in fact pay out at higher levels than the needs, and foundations should be free to cover their legally mandated minimum 5 percent. However, the administrative costs in whatever manner is most study also identified staff employment followed by appropriate. But the public interest is served best by staff size as the most important variables affecting 420 focusing attention on how much is paid out in grants. independent foundation expense levels. This sug- Providing 6 percent of its assets as grants to its non- gests that while a large number of independent foun- profit partners is a reasonable and fair benchmark. dations pay out grants at rates higher than 5 percent, Indeed, the following data analysis shows why NCRP many such grantmaking institutions likely do not. chose to focus the metric for this criterion to the per- An analysis of total grants made and total assets centage of a foundation’s assets that are paid out in from 2000 to 2005 in the 2008 edition of The grants and not on overall payout rates. Nonprofit Almanac provides similar data on grants By maintaining a generous payout level with 6 per- paid out by independent foundations. Table 4.2 sum- cent allocated to grants, an exemplary foundation marizes aggregate total giving for independent foun- 421 working within the framework of Philanthropy at Its dations. Best also adds more monies for the civil society sec- The data from 2001 to 2003 are especially impor- tor. Recent commentary and surveys have revealed tant because these are years during which the econo- that while individual foundation staff members often my was in a recession. Despite the negative impact support increased payout, foundation leadership and on foundation asset bases, there was marginal impact trustees are not always open to discussing payout in a on the proportion of grant dollars distributed. meaningful way.416 Foundations that are serious Moreover, this timeframe shows a higher level of about mission achievement should engage staff, lead- grant dollars paid out in grants compared to 2000, ership and board members in dialogue regarding pay- prior to the impact of the recession. Taken together out policy. with the Foundation Center’s forecasting for 2008 giv- In 2008, the Urban Institute’s Center on Nonprofits ing referenced earlier, this suggests that the majority and Philanthropy, the Foundation Center and of foundations do, in fact, use long-range planning in GuideStar released the final results of the Foundation determining their payout. Most foundations use a Expenses and Compensation Project, “the first large- three-year timeframe in determining what level of scale, long-term, systematic study of independent, payout to maintain.

96 A closer look at the largest independent foun- To contextualize foundation grants paid out better, dations, those with assets of $10 million or more it is worth noting the amount of total giving to foun- in 2002–2004, provides some balance to the over- dations as noted in the 2008 edition of Giving U.S.A. all sector trends. These data are summarized in The data are drawn from 2006 and total estimated Table 4.3.422 giving to foundations, excluding the Buffett payments The percentage of grants made by the largest inde- to the Gates Foundation, was $27.73 billion.423 pendent foundations included in the Almanac is dis- Comparing this figure to the amount of giving by appointingly low. Although such foundations repre- foundations for grants in the Almanac noted above sent 0.3 percent of all foundations analyzed, their leads to serious considerations of whether or not the assets accounted for 48.4 percent of all independent social benefit of philanthropy is being diminished in foundation assets in 2004 and 49.9 percent in both favor of warehousing foundation assets for the goal of 2003 and 2004. These data indicate that the largest perpetuity. Contrasting giving to foundations with giv- independent foundations are paying out well below 5 ing by foundations noted by the Foundation Center percent of their enormous assets in grants. The only lends more credence to the argument that philan- year in which this subsample provided more than 5 thropy’s perpetuity doctrine is undermining its social percent of its total assets in grants was 2002; in 2003 potential. Estimated giving by foundations in 2007 and 2004, the numbers in the table above are similar was $42.9 billion,424 less than double the amount of and below 5 percent. gifts received by institutional grantmakers. To reiter- ate, NCRP acknowledges the value of perpetual foundations in sustaining the U.S. civil society sector. Yet, TABLE 4.2 AGGREGATE TOTAL GIVING FOR the preceding data analysis demonstrates that higher INDEPENDENT FOUNDATIONS, 2000–2005 payout rates and perpetuity are in no way mutually GRANTS MADE ASSETS IN PERCENTAGE exclusive. YEAR IN $ MILLIONS $ MILLIONS TOTAL GIVING Warehousing of partially public dollars does not 2000 21,346 408,749 5.22 serve the public interest or advance the social bene- 2001 23,705 403,526 5.87 fits of philanthropy. In light of the data presented in the two studies above, it is clear that many founda- 2002 23,254 364,143 6.39 tions can and do have an all-grants payout rate of 2003 22,568 399,138 5.65 more than 5 percent. An exemplary foundation 2004 23,334 425,103 5.49 should focus on applying its assets toward fulfilling its 2005 25,199 455,570 5.53 mission and using its tax subsidized partially public

TABLE 4.3 AGGREGATE TOTAL GIVING OF FOUNDATIONS WITH ASSETS OF $10 MILLION OR MORE, 2002-2004

ASSETS IN GRANTS MADE ASSETS IN PERCENTAGE YEAR MILLIONS IN $ THOUSANDS $ THOUSANDS GRANTS MADE 2002 250 or more 10,591,925 210,772,484 5.03 50–249.9 5,852,752 87,250,757 6.71 10–49.9 5,486,975 71,547,145 7.67

2003 250 or more 10,521,494 237,735,202 4.43 50–249.9 5,974,240 92,458,500 6.46 10–49.9 5,307,777 77,346,419 6.86

2004 250 or more 11,306,943 254,909,427 4.44 50–249.9 5,732,432 100,942,795 5.68 10–49.9 5,362,931 82,226,337 6.52

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 97 National Committee for Responsive Philanthropy

TABLE 4.4 FIELD LEADERS IN PROACTIVE MISSION INVESTING425

The Hutton Foundation 43.6 percent F.B. Heron Foundation 26 percent K.L. Felicitas Foundation 20 percent Community Foundation of Sonoma County 14 percent Needmor Fund 14 percent Weeden Foundation 11 percent

TABLE 4.5 FIELD LEADERS IN INVESTMENT SCREENING426

Gordon and Betty Moore Foundation 100 percent screened Needmor Fund 100 percent screened Weeden Foundation 90 percent screened Jessie Smith Noyes Foundation 80 percent screened Nathan CummingsFoundation 17 percent screened Charles Stewart Mott Foundation Robert Wood Johnson Foundation William Penn Foundation Kresge Foundation Heinz Endowments Conservation Land Trust Educational Foundation of America Edward W. Hazen Foundation Max and Anna Levinson Foundation Merck Family Fund The Christopher Reynolds Foundation William Caspar Graustein Memorial Fund The William Bingham Foundation

TABLE 4.6 FIELD LEADERS IN SHAREHOLDER ACTIVISM427

Jessie Smith Noyes Foundation 25 percent of portfolio; close to 300 companies voted on in 2008 Nathan Cummings Foundation 5 percent of portfolio; filing 16 resolutions in 2009 Camilla Madden Charitable Trust Conservation Land Trust Edward W. Hazen Foundation Lemmon Foundation Max and Anna Levinson Foundation Needmor Fund Wisdom Charitable Trust

98 dollars to advance its charitable purpose. Informed by ment assets in non-grantmaking ways. As a result, a giving trends for total grants in the analysis above, a significant opportunity for broad, long-term changes grantmaker working in the Philanthropy at Its Best and advancing a foundation’s mission is lost. framework maintains a generous payout level with a Foundations should dedicate substantial portions of minimum of 6 percent dedicated to grants for non- their endowments toward achieving their charitable profit partners. purposes. As this section demonstrates, warehousing The limited mission investing data currently avail- of tax-exempt dollars does not serve the public inter- able make gauging sector-wide trends challenging. As est; it shortchanges the social benefit of philanthropy. noted, the IRS form 990 PF does not collect data on The many socially-responsible and mission investing foundation mission investment; foundation self- mechanisms available to a foundation demonstrate reporting is the sole source of this information. that such investments can minimize risk and provide According to available data, few foundations are reasonable returns and do not present high-risk engaging in Philanthropy at Its Best in terms of mis- options. By maintaining a generous grants payout and sion investing. However, given the three strategies investing a substantial portion of its assets in a man- that will count toward a grantmaker meeting or ner aligned with its mission, a foundation can exceeding this criterion, NCRP believes that all foun- increase its impact and demonstrate its commitment dations easily can take the minimal step of screening to achieving its charitable purpose. investments, with an eye toward engaging meaningfully in shareholder activism and substantive proactive mission investing. Several public charities and community foundations, such as the Boston Foundation, Funding Exchange, the Haymarket Fund, the As You Sow Foundation and the Tides Foundation428 engage substantively in mission investing. While this criterion applies primarily to private foundations, public charities could serve as an important resource for those grantmakers new to this type of investment. The principle undergirding this criterion is that tax- exempt assets should not be warehoused; rather, they should be put to use in support of the charitable purpose of the foundation. The key is an appropriate balance of payout and mission investing informed by the metrics established in this chapter. For example, a foundation might decide to show its commitment by spending down its assets in the short term but might decide not to engage in mission investing. A foundation that seeks to exist in perpetuity and also practices exemplary philanthropy would pay out 6 percent in grants only while also ensuring that at least 25 percent of its assets are invested in ways that support its mission.429

CONCLUSION Most foundations use only a tiny fraction of the financial assets at their disposal to achieve their missions. Many foundations continue “traditional payout policies,” paying out only 5 percent of their assets in qualifying distributions each year and do not prioritize the potential mission-advancing power of their invest-

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 99 National Committee for Responsive Philanthropy

Criterion IV: Commitment

A grantmaker practicing Philanthropy at Its Best serves the public good by engaging a substantial portion of its financial assets in pursuit of its mission.

a) Pays out at least 6 percent of its assets annually in grants

b) Invests at least 25 percent of its assets in ways that support its mission

> Which parts of the chapter did you like the most? > How did we establish that percentage? Are we sat- Why? isfied with that percentage? Why or why not?

> Which parts did you like the least? Why? > Are there ways we can use other investment assets at our disposal to achieve our mission? > Do you agree that it’s important to engage a substantial portion of our financial assets in pursuit of > What else from this chapter should inform our cur- our mission? Why or why not? rent grantmaking priorities?

> What percentage of our foundation’s assets do we > If we want to make any changes based on this dis- pay out in grants each year? How did we establish cussion, what will need to happen in order to that percentage? Are we satisfied with that per- make those changes? What are the next steps? centage? Why or why not?

> Have we ever considered had an intentional discussion about mission investing? What percentage of our foundation’s assets do we invest in accordance with our mission? (Include screening, proxy voting or shareholder activism, and proactive mission investments.)

100 NOTES FOR CHAPTER IV: COMMITMENT

316. William M. Dietel. Mission Stewardship: Aligning Programs, 334. See Richard C. Sansing, and Robert J. Yetman. Prudent Stewards Investments and Administration to Achieve Impact (New York, or Pyramid Builders? Distribution Policies of Private NY: F.B. Heron Foundation, 2006). Foundations (working paper no. 02-18, Dartmouth College 317. Arthur “Buzz” Schmidt. “Escaping the Perpetuity Mindset,” Tuck School of Business, September 6, 2002); Perry Mehrling, The Nonprofit Quarterly (Fall 2008). Schmidt is the founder of Spending Policies for Private Foundations: The Case for GuideStar, founder and CEO of GuideStar International and Increased Grants Payout, (Washington, D.C.: National Network consults with Southpoint Social Strategies, a management of Grantmakers, 1999); Heidi Waleson, Beyond Five Percent: consultant firm that works with nonprofits and their commu- The New Foundation Payout Menu (New York, NY: Northern nities to help them reach their goals. California Grantmakers, New York Regional Association of 318. Steven T. Miller. “Remarks before Georgetown Law Center Grantmakers, 2007); and Deep and Frumkin, Op. cit. Seminar on Issues in Nonprofit Governance,” (speech, 335. National Committee for Responsive Philanthropy. Helping Georgetown University, Washington, D.C., April 24, 2008), Charities, Sustaining Foundations: Reasonable Tax Reform http://philanthropy.com/documents/v20/i14/gtown2008.pdf. Would Aid America’s Charities, Preserve Foundation 319. Akash Deep and Peter Frumkin. The Foundation Payout Perpetuity and Enhance Foundation Effectiveness and Puzzle (working paper No. 9, Harvard University, The Hauser Efficiency (Washington, D.C.: National Committee for Center for Nonprofit Organizations, the Kennedy School of Responsive Philanthropy June 2, 2003). Government June 2001). 336. The Foundation Center. Foundation Center Statement on 320. The Foundation Center. Foundation Growth and Giving Source Data Used in NCRP Report and Implications for Estimates: Current Outlook (2008 edition), (New York, NY: Findings (New York, NY: The Foundation Center, June 16, 2003) The Foundation Center, 2008). The Foundation Center paper’s estimate was based on 1999 321. Bill Gates. “2009 Annual Letter from Bill Gates: Page 9: The data, when foundation grantmaking totaled $11.57 billion. Economic Crisis,” The Bill & Melinda Gates Foundation, 337. Cambridge Associates Inc. Sustainable Payout for Foundations http://www.gatesfoundation.org/annual-letter/Pages/2009- (Grand Haven, Mich.: Council of Michigan Foundations, April economic-crisis.aspx. 2000); Deep and Frumkin. Op. cit.; Billitteri. Op. cit.; 322. It is important to note that this payout rate is based on aver- Waleson. Op. cit. age, across-funds payouts, meaning that while some individ- 338. Schmidt. Op. cit. ual funds at public charities pay out at rates well above 6 per- 339. Billitteri. Op. cit., p. 27. cent in grants, others do not. 340. Mehrling. Op. cit. 323. Personal communication with NCRP. 341. Paul J. Jansen and David M. Katz. “For Nonprofits, Time is 324. According to IRS i990PF (990 instruction form), “A private Money,” The McKinsey Quarterly (2002): 124. foundation that is not a private operating foundation must pay 342. Mehrling. Op. cit. out, as qualifying distributions, its minimum investment 343. Adapted from Schmidt. Op. cit. return. This is generally 5 percent of the total fair market value 344. Ibid. of its non-charitable assets…” http://www.irs.gov/pub/irs- 345. Ibid., p. 5. pdf/i990pf.pdf. 346. Diane Feeney and Terry Odendahl. “Who’s Afraid of 325. Thomas J. Billitteri. Money, Mission and the Payout Rule: In Increasing Foundation Payout?” Foundation News & Search of a Strategic Approach to Foundation Spending Commentary, 40 (May/June 1999). (Washington, D.C.: Nonprofit Sector Research Fund, The 347. Sansing and Yetman. Op. cit. Aspen Institute. July 2005). 348. National Committee for Responsive Philanthropy. A Billion Here, 326. Ibid. A Billion There: The Empirical Data Add Up (Washington, D.C.: 327. Thomas Troyer. “The 1969 Private Foundation Law: Historical National Committee for Responsive Philanthropy July 8, 2003). Perspective on its Origins and Underpinnings,” Exempt 349. Council on Foundations. Issue Paper: Excise Tax on Private Organization Tax Review 27 (January 2000): 61. Foundations (Washington, D.C.: Council on Foundations, 328. Michael Anft. “How a Foundation Tax Became the Minimum- January 2004). Payout Rule,” The Chronicle of Philanthropy, June 26, 2008. 350. Estimate from Steve Gunderson, president and CEO of the 329. Billitteri. Op. cit. Council on Foundations, quoted in Aaron Dorfman, “In Their 330. Eugene Steuerle. “Distribution Requirements for Own Words: Foundation Trade Association CEOs Brief Their Foundations”, OTA Paper 12 (Washington, D.C.: U.S. Treasury Members on Issues Inside the Beltway,” Responsive Department Office of Tax Analysis, May 1976). Philanthropy (Fall 2008). 331. Ibid. 351. Written statement of Mark W. Everson, commissioner of 332. Deep and Frumkin. Op. cit. Internal Revenue, before the Committee on Finance, United 333. Jane C. Gravelle. “Minimum Distribution Requirements for States Senate, Hearing on Charitable Giving Problems and Foundations: Proposal to Disallow Administrative Costs,” CRS Best Practices (Washington, D.C.: Internal Revenue Service Report RS21603 (Washington, D.C.: Congressional Research June 22, 2004). http://www.irs.gov/newsroom/article/0,,id= Service, September 5, 2003). 124186,00.html.

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 101 National Committee for Responsive Philanthropy

352. Ian Wilhelm. “Nonprofit Leaders Debate Foundation (Summer 2007): 1; Sarah Cooch and Mark Kramer. Disclosure,” The Chronicle of Philanthropy, November 7, Compounding Impact: Mission Investing by U.S. Foundations 2008. (Boston: FSG Social Impact Advisors, March 2007); and Marcy 353. Michael Klausner. “Money Talk: Top Foundation Executives Murninghan. “A New Kind of Voter Education Project: Reveal How They Set Payout Rates, Executive Salaries, and Responsible Equity Ownership & the Public Interest,” Value, 1 Trustee Compensation,” Stanford Social Innovation Review (January 23, 2006): 60. (Summer 2004): 52. 372. Cooch and Kramer. Op. cit., p. 2. 354. John E. Craig Jr. “In Favor of Five Percent,” Foundation News 373. These usually are below-market rate loans made by an institu- & Commentary, 40 (May/June 1999): 23. tional grantmaker in support of a specific program. 355. Billitteri. Op. cit. 374. Adapted from Cooch and Kramer, Op. cit., p. 2. For legal 356. Klausner. Op. cit. guidelines for U.S. Foundations and MI, please see Mark 357. Waleson. Op. cit. Kramer and Anne Stetson, A Brief Guide to the Law of Mission 358. This is a conservative estimate; other estimates suggest a high- Investing for U.S. Foundations (Boston: FSG Social Impact er proportion of the Gates Foundation, between $1 for every Advisors, October, 2008). $7 or $8, account for all philanthropic dollars in the civil soci- 375. Cooch and Kramer. Op. cit., p. 45. ety sector. Moreover, the $30 billion pledge from Warren 376. Jed Emerson. “Where Money Meets Mission: Breaking Down Buffett to the Gates Foundation is a spend-down commitment. the Firewall Between Foundation Investments and All the money transferred in one year must be spent within Programming,” Stanford Social Innovation Review (Summer that year, i.e., there is no investment of Buffett’s gift to the 2003): 41. Gates Foundation. 377. Cooch and Kramer. Op. cit. 359. Waleson. Op. cit. 378. Providing Capital, Building Communities, Creating Impact: 360. Ibid. Community Development Financial Institutions, 6th Edition 361. Ibid. (Arlington, Va.: The CDFI Data Project, 2007). 362. Quoted in Emerson, Op. Cit. p. 45. 379. “S&P 500 Monthly Returns,” S&P 500 Index Services. 363. F.B. Heron Foundation. Impact Across the Mission-Related Retrieved from http://www2.standardandpoors.com/spf/xls/ Investment Portfolio – an overview from F.B. Heron 2007 index/MONTHLY.xls on August 8, 2008. Annual Report (New York, NY: F.B. Heron Foundation, 2008), 380. Cooch and Kramer. Op. cit. http://www.fbheron.org/documents/ar.2007.mri_impact.pdf; 381. Ragin. Op. cit. The F.B. Heron Foundation “About F.B. Heron,” 382. S&P 500 Monthly Returns.” Op. cit. http://www.fbheron.org/about_heron/index.html. 383. Cooch and Kramer. Op. cit. 364. Luther M. Ragin Jr. New Frontiers in Mission Related Investing 384. More for Mission Campaign Resource Center. “About Us,” (New York, NY: F.B. Heron Foundation 2003). More for Mission Investing, http://ec2-enilsson.ath.cx/sites/ 365. Amy L. Domini. “What Is Social Investing? Who Are Social mfm/default/page/15/about-us; this campaign was formerly Investors?” in The Social Investment Almanac: A known as the “2% for Mission Campaign.” Comprehensive Guide to Socially Responsible Investing, ed. 385. Adapted from: http://ec2-enilsson.ath.cx/sites/mfm/default/ Peter D. Kindler, Steven D. Lydenberg and Amy L. Domini page/15/about-us. (New York, NY: Henry Holt and Company 1992), 5. 386. Ibid. 366. Conrad MacKerron et al. Unlocking the Power of the Proxy: 387. “Mission-related Investing at the F.B. Heron Foundation: Data How Active Foundation Proxy Voting Can Protect Summary (as of December 31, 2006),” http://www.carleton.ca/ Endowments and Boost Philanthropic Missions (New York, ccci/files/MRI%20Data%20Text_12-31-06_wTR.pdf. NY: Rockefeller Philanthropy Advisors and As You Sow 388. Emerson. Op. cit. Foundation, 2004). 389. Mark R. Kramer. “Foundation Trustees Need a New 367. Joan Shapiro. “The Movement Since 1970,” in The Social Investment Approach,” The Chronicle of Philanthropy, March Investment Almanac: A Comprehensive Guide to Socially 23, 2006. Responsible Investing, ed. Peter D. Kindler, Steven D. 390. Sarah Cooch and Mark Kramer. “The Power of Strategic Lydenberg and Amy L. Domini, (New York, NY: Henry Holt Mission Investing,” Stanford Social Innovation Review (Fall and Company 1992), 8. 2007): 43. 368. Ibid. 391. Steven Godeke with Doug Bauer. Philanthropy’s New Passing 369. Joshua Humphreys. The Mission in the Marketplace: How Gear: Mission-Related Investing, A Policy and Implementation Responsible Investing Can Strengthen the Fiduciary Oversight Guide for Foundation Trustees (New York, NY: Rockefeller of Endowments and Enhance Philanthropic Missions. Philanthropy Advisors, 2008). (Washington, D.C.: The Social Investment Forum Foundation, 392. Emerson. Op. cit. 2007), 19. 393. Smithfield Foods, Inc. 2003 Stewardship Report: Environment, 370. In current mission-investing discourse, SRI often is used inter- Employee Safety and Animal Welfare, http://www.smithfield- changeably with the term “screening,” discussed as one of the foods.com/PDF/SFD_StewardshipReport_03.pdf. three strategies of a comprehensive mission investing 394. Smithfield Foods. “Search Results,” http://www.smithfield- approach. foods.com/results.aspx?q=cummings&cx=018443523105461 371. See Dave Beckwith. “Beyond Grantmaking: Letting our 935518%3Arctbpmymf40&cof=FORID%3A11#457. Foundation Assets Work Full-Time,” Responsive Philanthropy

102 395. Harvey Lipman. “Meshing Proxy with Mission: Few founda- 425. Cooch and Kramer March 2007. Op. cit.; direct communications do much to influence shareholder votes,” The Chronicle tions with NCRP. of Philanthropy, May 4, 2006. 426. List drawn from “Stock-Investment Policies at the 50 396. The example highlighted here is one of many conflicting Wealthiest Private Foundations.” Op. cit.; Humphreys. Op. investment decisions of the Gates Foundation uncovered by cit., p. 11; direct communications with NCRP. Foundations the Los Angeles Times, other media outlets and watchdogs. that employ a single screen only (such as avoiding tobacco Others include investments in Chinese petrochemical compa- stocks) are excluded. nies working with the corrupt and genocidal Sudanese gov- 427. List is drawn from Humphreys. Op. cit.; direct communica- ernment and large holdings in many financial institutions that tions with NCRP. contributed to the subprime mortgage crisis. 428. Humphreys. Op. cit. 397. Lipman. Op. cit. 429. As noted in the introduction, public charities’ payout rate is 398. Schmidt. Op. cit., p. 5 based on average, across-funds payouts, meaning that while 399. Schmidt. Op. cit.. p. 6. some individual funds at public charities pay out at rates well 400. Allessandra Bianchi. “The Other 95 Percent: How a commu- above 6 percent in grants, others do not; they also may choose nity foundation uses proxy voting to advance its mission,” to engage in mission-investing. But the concern with ware- Stanford Social Innovation Review (Winter 2005): 63. housing tax-exempt dollars applies primarily to private foun- 401. MacKerron et al. Op. cit., p. 27 dations. 402. Ibid. 403. “Stock-Investment Policies at the 50 Wealthiest Private Foundations,” The Chronicle of Philanthropy, May 4, 2006. 404. Lipman. Op. cit. 405. Ibid. 406. Personal communication between Victor de Luca and NCRP (December, 2008). 407. Godeke. Op. cit. 408. Ibid. 409. Sarah Cooch and Mark Kramer. Aggregating Impact: A Funder’s Guide to Mission Investment Intermediaries (Boston: FSG Social Impact Advisors, November 2007). 410. Michael Seltzer. “The Funder Next Door: When grantmakers move into the communities they serve,” Stanford Social Innovation Review (Fall 2005): 72. 411. Cooch and Kramer, November 2007. Op. cit. 412. For more information on MI intermediaries, please see Cooch and Kramer, November 2007. Op. cit. 413. Ragin. Op. cit. 414. Beckwith. Op. cit. 415. Lisa Ranghelli. “Mission-Related Investing,” excerpt from Needmor Fund Program Assessment (unpublished working paper, 2003). 416. Feeney and Odendahl. Op. cit.; Billitteri. Op. cit. 417. Elizabeth T. Boris et al. What Drives Foundation Expenses & Compensation? Results of a Three-Year Study (Washington, D.C.: The Urban Institute, the Foundation Center, GuideStar and Philanthropic Research Inc. 2008): xi. 418. Total Giving is defined as “The total amount paid out by foundations in the form of grants and contributions. […] For private foundations this figure is taken from Form 990-PF, Part I, line 25, column d.” Ibid., p. 71. 419. Ibid., p. 5. 420. Ibid., p. xii. 421. Kennard T. Wing, Thomas H. Pollack, and Amy Blackwood. The Nonprofit Almanac 2008. (Washington, D.C.: The Urban Institute Press, 2008): 105–106. 422. Ibid., p. 107. 423. GivingUSA Foundation, Giving USA 2008: The Annual Report on Philanthropy for the Year 2007 (Indianapolis: The Center on Philanthropy at Indiana University, 2008): 115. 424. The Foundation Center 2008. Op. cit.

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 103

Data Appendix

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 105 National Committee for Responsive Philanthropy

106 Data Appendix

o analyze current giving, NCRP worked with a meeting the benchmarks NCRP established does not Tcustom dataset developed with the Foundation imply that an individual grantmaking institution is not Center, which includes detailed information on more practicing Philanthropy at Its Best. than 1,200 of the largest foundations in the United The sample had a combined three-year average giv- States. The search set is based on the Foundation ing of $14,926,350,872 across 111,218 grants. This Center’s grants sample database, which includes all figure is the denominator used in NCRP’s calculations; grants of $10,000 or more awarded to organizations if analyzed within giving sub-samples, these figures by a sample of 1,172 larger foundations for circa would be higher and likely overstate the current giving 2004, 1,154 for circa 2005, and 1,263 for circa 2006. trends. Using the full samples average total giving pro- For community foundations, only discretionary grants vides a more comprehensive framework for analyzing are included. Grants to individuals are not included in the different types of grants. Although some grants are the file. International grants are included. The center’s coded for multiple intended beneficiary groups, the grants classification system provides much more detail total amounts of grantmaking intended to benefit spe- on current giving trends than other data sources. cific populations are not double-counted in the total To establish fair and reasonable benchmarks for giving numbers. NCRP also used aggregate statistics this document, NCRP analyzed giving among these from the Foundation Center’s annual reports for foundations across three years to avoid influential 1998–2006 as a broader frame in which to analyze outliers in any single year. The three-year timeframe our custom dataset. NCRP believes that the three-year looks at the most recent years for which data are combined data set provides the best indicator of cur- available. It was selected because a foundation prac- rent trends in the field. NCRP assumes exclusive ticing exemplary philanthropy should demonstrate responsibility for all data interpretation and metrics consistency over multiple years. Moreover, many established by the data analysis. foundations look at three- to five-year time horizons to determine their annual grants allocation. The total Giving for Marginalized Groups, broadly defined sample size was 809 foundations that consistently In the circa 2004–2006 time period from which the provided information to the Foundation Center on the NCRP dataset was drawn, in the aggregate, 33.2 per- issues NCRP analyzed for all three years. There like- cent of all grant dollars were provided for all 11 ly are many more foundations that meet the bench- intended beneficiary groups. That means that approx- marks established by NCRP based on our data analy- imately $1 out of every $3 granted by larger founda- sis but are not included in our sample. This is tions was intended to benefit communities with the because those institutions either do not provide least wealth, opportunity or power and that $2 out of detailed data to the Foundation Center or might not every $3 granted could not be classified as benefiting have done so consistently in the timeframe from those communities. which the NCRP sample was drawn. In other words, Leading the field, 108 foundations or about 13.35 being excluded from this sample or not being listed as percent of our sample provided at least 50 percent of

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 107 National Committee for Responsive Philanthropy

their grant dollars for the intended benefit of margin- this benchmark and still not be listed here. For exam- alized communities. This is the benchmark for ple, a grantmaker may not be included in the Philanthropy at Its Best. A list of all 108 foundations Foundation Center’s database or its grants may not be that NCRP found to currently meet or exceed this properly coded. benchmark can be found immediately below. As In analyzing the data for the eleven marginalized noted earlier, some foundations may meet or exceed groups for which it has data, NCRP identified the

PERCENT OF FOUNDATION GRANT DOLLARS PERCENT OF FOUNDATIONS DESIGNATED FOR MARGINALIZED COMMUNITIES MEETING NCRP’S CRITERIA FOR SUPPORT OF IN 2004–2006 NCRP SAMPLE MARGINALIZED COMMUNITIES

■ Designated for ■ Foundations 13.0% Marginalized Designating 50% or Communities 33.2% More of Grant Dollars for Marginalized ■ Not Designated for Communities Marginalized Communities ■ Foundations 66.3% Designating Less Than 50% of Grant Dollars 87.0% for Marginalized Communities

FOUNDATIONS MEETING NCRP'S CRITERIA FOR PHILANTHROPY AT ITS BEST SUPPORT FOR MARGINALIZED COMMUNITIES

FOUNDATION NAME STATE TYPE % 1 The James H. and Alice Teubert Charitable Trust WV Independent 100.0 2 The John M. Lloyd Foundation CA Independent 100.0 3 The Melville Charitable Trust MA Independent 99.7 4 The Retirement Research Foundation IL Independent 98.8 5 The Corella & Bertram F. Bonner Foundation, Inc. NJ Independent 97.4 6 Avon Foundation NY Corporate 97.0 7 Lavelle Fund for the Blind, Inc. NY Independent 95.1 8 van Ameringen Foundation, Inc. NY Independent 94.5 9 Marguerite Casey Foundation WA Independent 92.5 10 Oberkotter Foundation PA Independent 91.4 11 The Annie E. Casey Foundation MD Independent 86.0 12 Northwest Area Foundation MN Independent 84.4 13 New York Foundation NY Independent 84.3 14 The California Endowment CA Independent 84.2 15 The California Wellness Foundation CA Independent 83.8 16 Kimberly-Clark Foundation, Inc. TX Corporate 81.2 17 Essel Foundation, Inc. NY Independent 79.3 18 Tiger Foundation NY Independent 79.2 19 Fannie Mae Foundation DC Corporate 78.7 20 Moriah Fund DC Independent 78.5 21 The Gap Foundation CA Corporate 78.4 22 The Gill Foundation CO Independent 77.6 23 Fischer Family Foundation KY Independent 77.5 24 The F. B. Heron Foundation NY Independent 77.2

108 FOUNDATIONS MEETING NCRP'S CRITERIA FOR PHILANTHROPY AT ITS BEST SUPPORT FOR MARGINALIZED COMMUNITIES (CONTINUED)

FOUNDATION NAME STATE TYPE % 25 The Edna McConnell Clark Foundation NY Independent 76.2 26 Kate B. Reynolds Charitable Trust NC Independent 75.7 27 Otto Bremer Foundation MN Independent 75.6 28 The Kimball Foundation CA Independent 75.6 29 Freddie Mac Foundation VA Corporate 75.5 30 Great Bay Foundation for Social Entrepreneurship ME Independent 75.2 31 B. C. McCabe Foundation CA Independent 74.4 32 Con Alma Health Foundation, Inc. NM Independent 72.6 33 Jessie Smith Noyes Foundation, Inc. NY Independent 72.3 34 The Skillman Foundation MI Independent 71.7 35 JEHT Foundation NY Independent 71.5 36 Public Welfare Foundation, Inc. DC Independent 71.5 37 The Hyams Foundation, Inc. MA Independent 69.5 38 California Community Foundation CA Community 69.4 39 John D. & Edna Hofer Trust SD Independent 68.2 40 The Community Foundation Serving Richmond & Central Virginia VA Community 68.1 41 Evelyn and Walter Haas, Jr. Fund CA Independent 67.3 42 The Sunshine Lady Foundation, Inc. NC Independent 66.8 43 Steven A. and Alexandra M. Cohen Foundation CT Independent 66.5 44 The Gamble Foundation CA Independent 66.2 45 Eugene and Agnes E. Meyer Foundation DC Independent 65.3 46 The Pinkerton Foundation NY Independent 65.3 47 The Abell Foundation, Inc. MD Independent 65.2 48 The Tudor Foundation, Inc. CT Independent 65.0 49 Carrie Estelle Doheny Foundation CA Independent 64.9 50 The Winston-Salem Foundation NC Community 64.7 51 The Susan Thompson Buffett Foundation NE Independent 64.5 52 The Cleo Foundation CA Independent 64.2 53 Weingart Foundation CA Independent 64.0 54 Lumina Foundation for Education, Inc. IN Independent 63.9 55 The Rockefeller Foundation NY Independent 63.8 56 Bill & Melinda Gates Foundation WA Independent 63.7 57 The Coca-Cola Foundation, Inc. GA Corporate 63.7 58 Philip L. Graham Fund DC Independent 63.5 59 The Ira W. DeCamp Foundation NY Independent 63.4 60 Levi Strauss Foundation CA Corporate 62.9 61 Nina Mason Pulliam Charitable Trust IN Independent 62.7 62 Altman Foundation NY Independent 62.3 63 Manoogian Simone Foundation MI Independent 62.2 64 Pleasant T. Rowland Foundation, Inc. WI Independent 62.0 65 Raskob Foundation for Catholic Activities, Inc. DE Independent 61.8 66 Helena Rubinstein Foundation, Inc. NY Independent 61.1 67 Robert Sterling Clark Foundation, Inc. NY Independent 60.4 68 Foundation for Child Development NY Independent 59.8 69 The Bothin Foundation CA Independent 59.7 70 Connecticut Health Foundation, Inc. CT Independent 59.5

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 109 National Committee for Responsive Philanthropy

FOUNDATIONS MEETING NCRP'S CRITERIA FOR PHILANTHROPY AT ITS BEST SUPPORT FOR MARGINALIZED COMMUNITIES (CONTINUED)

FOUNDATION NAME STATE TYPE % 71 John W. Anderson Foundation IN Independent 58.9 72 The Clark Foundation NY Independent 58.4 73 Topfer Family Foundation TX Independent 57.8 74 Eckerd Family Foundation, Inc. FL Independent 57.6 75 Rockwell Fund, Inc. TX Independent 57.2 76 The Atlantic Foundation of New York NY Independent 57.1 77 The Goldsbury Foundation TX Independent 56.5 78 Cisco Systems Foundation CA Corporate 56.2 79 Community Foundation for Monterey County CA Community 56.0 80 The Prudential Foundation NJ Corporate 56.0 81 Kalamazoo Community Foundation MI Community 55.9 82 Conrad N. Hilton Foundation NV Independent 55.8 83 Norwin S. and Elizabeth N. Bean Foundation NH Independent 55.6 84 Bush Foundation MN Independent 54.5 85 Lozier Foundation NE Independent 54.4 86 W. K. Kellogg Foundation MI Independent 54.3 87 Michael Reese Health Trust IL Independent 54.3 88 The Sandy River Charitable Foundation ME Independent 54.2 89 The Baltimore Community Foundation MD Community 53.9 90 Woods Charitable Fund, Inc. NE Independent 53.2 91 Helen Bader Foundation, Inc. WI Independent 53.2 92 Grousbeck Family Foundation CA Independent 52.7 93 Mertz Gilmore Foundation NY Independent 52.3 94 The Ford Foundation NY Independent 52.2 95 Victoria Foundation, Inc. NJ Independent 52.1 96 Amelia Peabody Foundation MA Independent 52.0 97 Polk Bros. Foundation, Inc. IL Independent 51.6 98 The Case Foundation DC Independent 51.5 99 Eva L. and Joseph M. Bruening Foundation OH Independent 51.2 100 The Achelis Foundation NY Independent 51.1 101 Albert & Bessie Mae Kronkosky Charitable Foundation TX Independent 51.0 102 S. H. Cowell Foundation CA Independent 51.0 103 F. R. Bigelow Foundation MN Independent 50.5 104 The ALSAM Foundation UT Independent 50.5 105 McInerny Foundation HI Independent 50.2 106 The Morris and Gwendolyn Cafritz Foundation DC Independent 50.1 107 Houston Endowment Inc. TX Independent 50.0 108 Delaware Community Foundation DE Community 50.0

following giving trends across special population 1. Economically disadvantaged: In NCRP’s sample, groups. The aggregate statistics presented immedi- 737 of the 809 foundations comprising 91.1 per- ately after this analysis are drawn from the cent of the sample provided at least some grants Foundation Center’s annual reports for 1998–2006 intended to benefit the economically disadvan- as a broader frame in which to analyze NCRP’s cus- taged directly. Within the subset of 737 founda- tom data. NCRP identified marginalized group-spe- tions that provided grants for this intended benefi- cific field leaders that are listed after the aggregate ciary group, the huge variability obscured by statistics. aggregated data is stark: for example, the range for

110 the top ten foundations is 63.4–97.4 percent. abuse victims. This subsample represents almost 2. Racial or ethnic minorities: In analyzing giving two-thirds of our total sample (66.25 percent), trends for racial or ethnic minorities, 664 of the full indicating that many foundations devote at least sample of 809 foundations provided grants intend- some resources to support this vulnerable popula- ed to benefit this group. The aggregate numbers tion group. for grantmaking intended to benefit racial or ethnic 9. Offenders and ex-offenders: 367 of our 809 foun- minorities as a share of overall giving are disap- dations provided grants to benefit offenders and pointingly low: less than 8 percent (7.78) of all ex-offenders. There is huge variability among the grant dollars were intended to benefit racial or eth- top 25 funders, indicating there are very few fun- nic minorities. A disappointingly low proportion, ders who prioritize giving to this group. less than 5 percent (4.57), of NCRP’s total sample 10. Single parents: 189 foundations in our sample pro- provided 25 percent or more for the intended ben- vided grants to benefit single parents. Only 20 efit of racial or ethnic minorities. foundations provided 1 percent or more of their 3. Women and girls: 715 foundations provided grants grant dollars for single parents, demonstrating that classified to benefit women and girls. support for single parents is not a high priority for Unsurprisingly, the Avon Foundation tops the list many foundations. with 96 percent of grant dollars given for the 11. LGBTQ citizens:431 173 foundations or just over intended benefit of women and girls. The leading 21 percent of our sample provided grants intended 25 foundations as a percentage of grant dollars to to benefit the LGBTQ population. Grantmaking benefit women and girls provide between 20.2 for LGBTQ populations is highly concentrated as and 96 percent. demonstrated by the range of the top ten funders 4. People with AIDS: 323 foundations made grants for this population group: 2.2 to 61.7 percent. for this population group. Fully 240 foundations comprising this subsample, or roughly three-quar- AGGREGATE STATISTICS: GIVING BY INTENDED ters (74.3 percent), provided less than 1 percent of BENEFICIARY GROUP IN THE NCRP SAMPLE their grants as intended to benefit people with COMPARED TO NATIONAL LONGITUDINAL TRENDS AIDS. The range of the top ten foundations here is 8.2 to 98.2 percent. INTENDED LOWEST AND HIGHEST PERCENT OF GRANTS 5. People with disabilities: 692 foundations of our BENEFICIARY SINGLE YEAR PERCENT OF AWARDED IN THE 432 sample provided grant dollars to benefit people with GROUP ALL GRANTS AWARDED 2004–2006 433 disabilities. The James and Alice Teubert Charitable (1998-2006) NCRP SAMPLE Trust leads with 100 percent of grant dollars devot- Economically ed to this cause. The top 25 funders by the percent- disadvantaged 11.7–21.2 19.9 age granted to benefit people with disabilities gave Ethnic and racial from 17.2 to 100 percent of grant dollars. minorities 7.0–9.9 7.8 6. Aging, elderly, senior citizens: A total of 555 foun- Women and girls 5.2–7.3 6.1 dations made grants for this beneficiary group. People with AIDS 0.5–5.2 3.3 The Retirement Research Foundation tops the list People with at 97.8 percent of its grant dollars to benefit the disabilities 2.8–4.0 2.9 aging and elderly. The top 25 funders by the per- Aging, elderly, centage devoted to this area shows high variability senior citizens 1.6–2.1 1.5 from 9.6 to 97.8 percent. Immigrants and 7. Immigrants & Refugees:430 385 foundations, some refugees 0.7–1.1 1.0 47.58 percent of our overall sample, provided Crime or abuse funds to benefit immigrants and refugees. The victims 0.8–1.6 0.9 range for the top 25 funders in terms of proportion Offenders and of grants made to benefit immigrants and refugees ex-offenders 0.3–0.7 0.7 shows high variability, with a lower bound of 5.8 LGBTQ 0.1 0.2 percent and an upper bound of 40.3 percent. Single parents 0.1–0.2 0.1 8. Crime/Abuse victims: 536 foundations from our TOTAL 33.2 sample provide grants intended to benefit crime or

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 111 National Committee for Responsive Philanthropy

TOP 25 FUNDERS OF ECONOMICALLY DISADVANTAGED COMMUNITIES (AS A PROPORTION OF TOTAL GIVING) FOUNDATION NAME STATE TYPE % 1 The Corella & Bertram F. Bonner Foundation, Inc. NJ Independent 97.4 2 The Melville Charitable Trust MA Independent 91.9 3 The Annie E. Casey Foundation MD Independent 78.1 4 Northwest Area Foundation MN Independent 74.3 5 Fannie Mae Foundation DC Corporate 71.7 6 Marguerite Casey Foundation WA Independent 71.7 7 The F. B. Heron Foundation NY Independent 71.6 8 Tiger Foundation NY Independent 71.0 9 John D. & Edna Hofer Trust SD Independent 66.4 10 The Kimball Foundation CA Independent 64.7 11 The Gamble Foundation CA Independent 63.4 12 Kate B. Reynolds Charitable Trust NC Independent 63.3 13 The California Endowment CA Independent 61.0 14 California Community Foundation CA Community 60.0 15 The Rockefeller Foundation NY Independent 58.1 16 Kimberly-Clark Foundation, Inc. TX Corporate 57.1 17 Freddie Mac Foundation VA Corporate 56.4 18 The California Wellness Foundation CA Independent 53.4 19 Lumina Foundation for Education, Inc. IN Independent 53.0 20 van Ameringen Foundation, Inc. NY Independent 52.7 21 The Sandy River Charitable Foundation ME Independent 52.2 22 The Ira W. DeCamp Foundation NY Independent 51.9 23 The Abell Foundation, Inc. MD Independent 50.9 24 The Clark Foundation NY Independent 50.0 25 Jessie Smith Noyes Foundation, Inc. NY Independent 49.8

TOP 10 FUNDERS OF ETHNIC AND RACIAL MINORITY COMMUNITIES (AS A PROPORTION OF TOTAL GIVING)

FOUNDATION NAME STATE TYPE % 1 Kimberly-Clark Foundation, Inc. TX Corporate 64.5 2 Marguerite Casey Foundation WA Independent 56.3 3 The Skillman Foundation MI Independent 56.3 4 Manoogian Simone Foundation MI Independent 55.7 5 Lumina Foundation for Education, Inc. IN Independent 49.7 6 Northwest Area Foundation MN Independent 49.1 7 New York Foundation NY Independent 46.9 8 Jessie Smith Noyes Foundation, Inc. NY Independent 46.4 9 The California Endowment CA Independent 46.1 10 Moriah Fund DC Independent 43.2

112 TOP 10 FUNDERS OF WOMEN & GIRLS (AS A PROPORTION OF TOTAL GIVING)

FOUNDATION NAME STATE TYPE % 1 Avon Foundation NY Corporate 96.0 2 Fischer Family Foundation KY Independent 65.8 3 Pleasant T. Rowland Foundation, Inc. WI Independent 62.0 4 The Susan Thompson Buffett Foundation NE Independent 51.9 5 John W. Anderson Foundation IN Independent 44.6 6 Robert Sterling Clark Foundation, Inc. NY Independent 44.1 7 B. C. McCabe Foundation CA Independent 40.2 8 McAdams Charitable Foundation RI Independent 35.1 9 Compton Foundation, Inc. CA Independent 33.1 10 The Bristol-Myers Squibb Foundation, Inc. NY Corporate 31.6

TOP 5 FUNDERS OF PEOPLE WITH AIDS (AS A PROPORTION OF TOTAL GIVING)

FOUNDATION NAME STATE TYPE % 1 The John M. Lloyd Foundation CA Independent 98.2 2 The Bristol-Myers Squibb Foundation, Inc. NY Corporate 37.5 3 Irene Diamond Fund NY Independent 32.0 4 The Merck Company Foundation NJ Corporate 24.3 5 Bill & Melinda Gates Foundation WA Independent 21.5

TOP 5 FUNDERS OF PEOPLE WITH DISABILITIES (AS A PROPORTION OF TOTAL GIVING)

FOUNDATION NAME STATE TYPE % 1 The James H. and Alice Teubert Charitable Trust WV Independent 100.0 2 Lavelle Fund for the Blind, Inc. NY Independent 64.2 3 Oberkotter Foundation PA Independent 90.9 4 Essel Foundation, Inc. NY Independent 79.3 5 van Ameringen Foundation, Inc. NY Independent 74.5

TOP 5 FUNDERS OF AGING, THE ELDERLY & SENIOR CITIZENS (AS A PROPORTION OF TOTAL GIVING)

FOUNDATION NAME STATE TYPE % 1 The Retirement Research Foundation IL Independent 97.8 2 The Fan Fox and Leslie R. Samuels Foundation, Inc. NY Independent 39.2 3 Mary Stuart Rogers Foundation CA Independent 38.4 4 The Atlantic Foundation of New York NY Independent 34.5 5 The Ellison Medical Foundation MD Independent 24.6

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 113 National Committee for Responsive Philanthropy

TOP 5 FUNDERS OF IMMIGRANT & REFUGEE COMMUNITIES (AS A PROPORTION OF TOTAL GIVING)

FOUNDATION NAME STATE TYPE % 1 Foundation for Child Development NY Independent 40.3 2 New York Foundation NY Independent 30.2 3 Moriah Fund DC Independent 19.8 4 The California Endowment CA Independent 13.0 5 Evelyn and Walter Haas, Jr. Fund CA Independent 12.9

TOP 5 FUNDERS OF CRIME & ABUSE VICTIMS (AS A PROPORTION OF TOTAL GIVING)

FOUNDATION NAME STATE TYPE % 1 The Goldsbury Foundation TX Independent 24.7 2 The Sunshine Lady Foundation, Inc. NC Independent 18.8 3 The Coca-Cola Foundation, Inc. GA Corporate 17.8 4 Topfer Family Foundation TX Independent 16.0 5 Freddie Mac Foundation VA Corporate 14.7

TOP 5 FUNDERS OF OFFENDERS & EX-OFFENDERS (AS A PROPORTION OF TOTAL GIVING)

FOUNDATION NAME STATE TYPE % 1 JEHT Foundation NY Independent 57.7 2 Lord Rudolph Spanier Foundation, Inc. VT Independent 20.5 3 Open Society Institute NY Operating 18.5 4 The Abell Foundation, Inc. MD Independent 15.6 5 The Edna McConnell Clark Foundation NY Independent 14.7

TOP 5 FUNDERS OF SINGLE PARENTS (AS A PROPORTION OF TOTAL GIVING)

FOUNDATION NAME STATE TYPE % 1 Woods Charitable Fund, Inc. NE Independent 5.4 2 Mathile Family Foundation OH Independent 4.0 3 Topfer Family Foundation TX Independent 3.1 4 The Community Foundation of Greater Chattanooga, Inc. TN Community 2.5 5 Albert & Bessie Mae Kronkosky Charitable Foundation TX Independent 2.3

TOP 5 FUNDERS OF LGBTQ COMMUNITIES (AS A PROPORTION OF TOTAL GIVING)

FOUNDATION NAME STATE TYPE % 1 The Gill Foundation CO Independent 61.7 2 Evelyn and Walter Haas, Jr. Fund CA Independent 16.6 3 Arcus Foundation MI Independent 13.7 4 Mertz Gilmore Foundation NY Independent 11.9 5 The John M. Lloyd Foundation CA Independent 6.4

114 Giving for advocacy, organizing and civic PERCENT OF FOUNDATIONS MEETING NCRP’S engagement CRITERIA FOR ADVOCACY, ORGANIZING AND To look more closely at current giving in advocacy, CIVIC ENGAGEMENT community organizing and civic engagement, NCRP analyzed disaggregated data in social justice grant- 7% making that we used as a proxy for this work. Grants ■ Foundations that meet the social justice definition described in this Designating 25% or chapter and in the Foundation Center’s publications More of Grant Dollars on social justice grantmaking are included.434 for Social Justice

Because the Center tracks only larger foundations, ■ Foundations there very likely are many more foundations—such as Designating Less Than the Woods Fund of Chicago and the Liberty Hill 25% of Grant Dollars Foundation of Los Angeles—that fund social justice for Social Justice work that are not included in our sample. The list 93% drew the leading social justice grantmakers from the Foundation Center’s database435 with sufficient data to be included in our analysis of systems or structural change grants. Some foundations could not be tice grant in the time period analyzed, many did so at included in the analysis because they did not provide very low levels. data for all three years. Leading the field, 56 foundations, or about 6.9 per- NCRP’s analysis of social justice grantmaking as a cent of our sample, provided at least 25 percent of their share of overall grantmaking demonstrates great vari- grant dollars for social justice. This is the benchmark ability among the leading U.S. social justice grant- for Philanthropy at Its Best.436 A list of all 56 founda- makers. In the aggregate, 682 (84 percent) of our tions that currently meet or exceed this benchmark can total sample of 809 foundations made at least one be found immediately following. As noted earlier, social justice related grant during the three-year time some foundations may meet or exceed this benchmark period; average giving over three years was and still not be listed here. For example, a grantmaker $1,549,135,953, comprising 11,958 grants. Though may not be included in the Foundation Center’s data- 84 percent of the sample made at least one social jus- base or its grants may not be coded properly.

FOUNDATIONS MEETING NCRP’S CRITERIA FOR PHILANTHROPY AT ITS BEST SOCIAL JUSTICE GRANTMAKING (AS A PROPORTION OF TOTAL GIVING)

FOUNDATION NAME STATE TYPE % 1 The Melville Charitable Trust MA Independent 81 2 Moriah Fund DC Independent 76.9 3 Marguerite Casey Foundation WA Independent 76.9 4 Northwest Area Foundation MN Independent 74.5 5 Jessie Smith Noyes Foundation, Inc. NY Independent 70.9 6 JEHT Foundation NY Independent 65.5 7 The Annie E. Casey Foundation MD Independent 62.6 8 Fannie Mae Foundation DC Corporate 62.3 9 Mertz Gilmore Foundation NY Independent 61 10 The F. B. Heron Foundation NY Independent 60.7 11 New York Foundation NY Independent 60.2 12 Robert Sterling Clark Foundation, Inc. NY Independent 59.3 13 The Gill Foundation CO Independent 55.3 14 Public Welfare Foundation, Inc. DC Independent 54.9 15 The Ford Foundation NY Independent 54.1

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 115 National Committee for Responsive Philanthropy

FOUNDATIONS MEETING NCRP’S CRITERIA FOR PHILANTHROPY AT ITS BEST SOCIAL JUSTICE GRANTMAKING (AS A PROPORTION OF TOTAL GIVING) (CONTINUED)

FOUNDATION NAME STATE TYPE % 16 Evelyn and Walter Haas, Jr. Fund CA Independent 52.1 17 The Rockefeller Foundation NY Independent 48.5 18 The John M. Lloyd Foundation CA Independent 48.4 19 The California Endowment CA Independent 47.7 20 The Commonwealth Fund NY Independent 47.1 21 John D. and Catherine T. MacArthur Foundation IL Independent 46.4 22 The Fund for New Jersey NJ Independent 45.8 23 Z. Smith Reynolds Foundation, Inc. NC Independent 45.3 24 Open Society Institute NY Operating 44.4 25 Compton Foundation, Inc. CA Independent 43 26 Wallace Alexander Gerbode Foundation CA Independent 41.6 27 W. K. Kellogg Foundation MI Independent 40.1 28 Charles Stewart Mott Foundation MI Independent 37.8 29 Bauman Family Foundation, Inc. DC Independent 36.9 30 The Hyams Foundation, Inc. MA Independent 36.7 31 The John Merck Fund MA Independent 35.7 32 Otto Bremer Foundation MN Independent 34.4 33 The Overbrook Foundation NY Independent 34 34 The Retirement Research Foundation IL Independent 33.4 35 The California Wellness Foundation CA Independent 33.2 36 Lumina Foundation for Education, Inc. IN Independent 32.8 37 Foundation for Seacoast Health NH Independent 31.3 38 The Case Foundation DC Independent 30.7 39 The Joyce Foundation IL Independent 29.9 40 Carnegie Corporation of New York NY Independent 29.5 41 van Ameringen Foundation, Inc. NY Independent 29.5 42 Levi Strauss Foundation CA Corporate 29.5 43 The Atlantic Foundation of New York NY Independent 29.2 44 The San Diego Foundation CA Community 28.7 45 Citi Foundation NY Corporate 28.4 46 The Nathan Cummings Foundation NY Independent 28.1 47 Foundation for Child Development NY Independent 27.8 48 The Sandy River Charitable Foundation ME Independent 27.5 49 William T. Grant Foundation NY Independent 27.1 50 John S. and James L. Knight Foundation FL Independent 26.8 51 The Coca-Cola Foundation, Inc. GA Corporate 26.4 52 The James Irvine Foundation CA Independent 26 53 The McKnight Foundation MN Independent 25.9 54 S. H. Cowell Foundation CA Independent 25.9 55 Alan B. Slifka Foundation, Inc. NY Independent 25.5 56 Rockefeller Brothers Fund, Inc. NY Independent 25.3

116 Giving for general operating support PERCENT OF FOUNDATIONS To ensure that our Criteria for Philanthropy at Its Best MEETING NCRP’S CRITERIA FOR GENERAL is informed by current practice, NCRP worked with OPERATING SUPPORT the Foundation Center to produce a custom dataset on general operating support and multi-year funding. The dataset reported disaggregated foundation giving ■ Foundations 15.5% by types of support for a three-year period from circa Designating 50% or 2004–2006. The resulting data present a reasonably More of Grant Dollars reliable picture of the percentage of grants or grant for General Operating Support dollars each foundation gave based on the two types of support NCRP’s analysis identified as associated ■ Foundations with positive investments in the health, growth and Designating Less Than effectiveness of its grantee partners. 50% of Grant Dollars 84.5% Of the 809 foundations in NCRP’s total sample, for General Operating Support 617 provided at least some grant dollars for general operating support.437 In the aggregate, 16.2 percent of grant dollars were provided for general support. The 50 foundations that provided the highest proportion of This is the benchmark for Philanthropy at Its Best. It is their grant dollars for general operating support gave possible that individual grantmakers that are not more than 90 percent of their grant dollars over all included in this list meet the 50 percent benchmark. If three years for general support. These grantmakers a foundation is not included in the lists of “field lead- comprise just over 6 percent (6.18) of the total NCRP ers,” this is the result of either not being part of the sample. Within this subsample, 30 foundations pro- database from which the NCRP sample was drawn or vided fully 100 percent of their grant dollars for this because that foundation did not provide data consis- type of support. These 30 foundations comprise just tently over the timeframe of the analysis. It also is pos- below 4 percent (3.70) of the total NCRP sample. sible that a foundation made general support grants Leading the field, 125 foundations, or about 15.5 per- that were not coded properly. In short, exclusion does cent of the NCRP sample, provided at least 50 percent not imply that a grantmaker is not providing the types of their grant dollars for general operating support. of support essential to improving effectiveness.

FOUNDATIONS MEETING NCRP'S CRITERIA FOR PHILANTHROPY AT ITS BEST GENERAL OPERATING SUPPORT (AS A PROPORTION OF TOTAL GIVING)

FOUNDATION NAME STATE TYPE % 1 Aspen Foundation, Inc. NJ Independent 100.0 2 The Lerner Foundation OH Independent 100.0 3 JHJ Foundation, Inc. NJ Independent 100.0 4 The William K. Warren Foundation OK Independent 100.0 5 Emerson Charitable Trust MO Corporate 100.0 6 Comer Science & Education Foundation IL Independent 100.0 7 Beatrice P. Delany Charitable Trust DE Independent 100.0 8 Jurodin Fund, Inc. DE Independent 100.0 9 Mary Stuart Rogers Foundation CA Independent 100.0 10 S & G Foundation, Inc. WY Independent 100.0 11 Jack N. and Lilyan Mandel Foundation OH Independent 100.0 12 The Gottesman Fund DC Independent 100.0 13 Covenant Foundation, Inc. TX Independent 100.0 14 The Smart Family Foundation CT Independent 100.0 15 Manoogian Simone Foundation MI Independent 100.0 16 James H. Clark Charitable Foundation NV Independent 100.0

117 Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact National Committee for Responsive Philanthropy

FOUNDATIONS MEETING NCRP'S CRITERIA FOR PHILANTHROPY AT ITS BEST GENERAL OPERATING SUPPORT (AS A PROPORTION OF TOTAL GIVING) (CONTINUED)

FOUNDATION NAME STATE TYPE % 17 The Larry L. Hillblom Foundation, Inc. CA Independent 100.0 18 Grousbeck Family Foundation CA Independent 100.0 19 John R. McCune Charitable Trust PA Independent 100.0 20 Irene W. & C. B. Pennington Foundation LA Independent 100.0 21 Mote Scientific Foundation, Inc. FL Independent 100.0 22 Essel Foundation, Inc. NY Independent 100.0 23 Ann and Robert H. Lurie Foundation IL Independent 100.0 24 The MCJ Foundation NJ Independent 100.0 25 The Arthur and Rochelle Belfer Foundation, Inc. NY Independent 100.0 26 Dick & Betsy DeVos Foundation MI Independent 100.0 27 Mitzi & Warren Eisenberg Family Foundation, Inc. NJ Independent 100.0 28 The ALS Foundation UT Independent 100.0 29 Fischer Family Foundation KY Independent 100.0 30 NCC Charitable Foundation OH Corporate 100.0 31 Leslie H. Wexner Charitable Fund NY Independent 99.9 32 Dan Murphy Foundation CA Independent 99.9 33 The Shubert Foundation, Inc. NY Independent 99.6 34 Susan & Leonard Feinstein Foundation NY Independent 99.3 35 George W. Mergens Foundation VT Independent 99.3 36 The Richard and Helen DeVos Foundation MI Independent 99.0 37 E. L. and Thelma Gaylord Foundation OK Independent 99.0 38 Bradley-Turner Foundation, Inc. GA Independent 99.0 39 Pritzker Foundation IL Independent 99.0 40 The Mosaic Fund NY Independent 98.1 41 Rath Foundation, Inc. WI Independent 97.4 42 Boeing-McDonnell Foundation MO Corporate 96.9 43 John J. and Mary R. Schiff Foundation OH Independent 96.5 44 Lewis B. & Dorothy Cullman Foundation, Inc. NY Independent 96.0 45 The Anne and Henry Zarrow Foundation OK Independent 96.0 46 The Pinkerton Foundation NY Independent 95.8 47 John W. Anderson Foundation IN Independent 94.6 48 The Abramson Family Foundation FL Independent 94.5 49 S. J. & Jessie E. Quinney Foundation UT Independent 94.1 50 Citizens Charitable Foundation RI Corporate 91.8 51 Arcus Foundation MI Independent 89.3 52 D & DF Foundation CA Independent 89.3 53 Orville D. & Ruth A. Merillat Foundation MI Independent 86.3 54 Browning-Kimball Foundation MT Independent 86.1 55 The MBNA Foundation DE Corporate 84.8 56 Duke Energy Foundation NC Corporate 80.7 57 J. Roderick MacArthur Foundation IL Independent 80.1 58 Mathile Family Foundation OH Independent 79.4 59 Mary Flagler Cary Charitable Trust NY Independent 79.1 60 The Murphy Foundation AR Independent 78.6 61 Boston Foundation, Inc. MA Community 78.3 62 Community Foundation of Greater Memphis TN Community 77.7 63 Bernard & Irene Schwartz Foundation, Inc. NY Independent 77.2

118 FOUNDATIONS MEETING NCRP'S CRITERIA FOR PHILANTHROPY AT ITS BEST GENERAL OPERATING SUPPORT (AS A PROPORTION OF TOTAL GIVING) (CONTINUED)

FOUNDATION NAME STATE TYPE % 64 The Dibner Fund, Inc. CT Independent 77.1 65 The Flatley Foundation MA Independent 76.8 66 Steven A. and Alexandra M. Cohen Foundation CT Independent 76.3 67 The Ambrose Monell Foundation NY Independent 74.5 68 The Oak Foundation U.S.A. ME Independent 74.4 69 Gladys and Roland Harriman Foundation NY Independent 73.9 70 Hazel Ruby McQuain Charitable Trust WV Independent 72.2 71 Hess Foundation, Inc. NJ Independent 71.2 72 BP Foundation, Inc. IL Corporate 70.8 73 The John W. Kluge Foundation MD Independent 69.1 74 Merrill Lynch & Co. Foundation, Inc. NY Corporate 68.7 75 The F. B. Heron Foundation NY Independent 68.6 76 The AVI CHAI Foundation NY Independent 67.9 77 The Holland Foundation NE Independent 67.1 78 Winthrop Rockefeller Trust AR Independent 67.0 79 Verizon Foundation NJ Corporate 66.8 80 The Carthage Foundation PA Independent 66.3 81 The Crawford Taylor Foundation MO Independent 66.3 82 Jessie Smith Noyes Foundation, Inc. NY Independent 66.6 83 The May Department Stores Foundation OH Corporate 66.0 84 The William H. Donner Foundation NY Independent 65.3 85 The Marcus Foundation, Inc. GA Independent 64.9 86 Public Welfare Foundation, Inc. DC Independent 63.1 87 Sue and Edgar Wachenheim Foundation NY Independent 63.0 88 Skirball Foundation NY Independent 62.9 89 The L. E. Phillips Family Foundation, Inc. DE Independent 62.4 90 The Batchelor Foundation, Inc. FL Corporate 62.0 91 Ted Arison Charitable Trust FL Independent 62.0 92 William K. Bowes, Jr. Foundation CA Independent 61.8 93 The Jacob and Hilda Blaustein Foundation, Inc. MD Independent 61.1 94 Alan B. Slifka Foundation, Inc. NY Independent 60.7 95 Progress Energy Foundation, Inc. NC Corporate 60.6 96 The Byrne Foundation, Inc. NH Independent 60.4 97 Fannie Mae Foundation DC Corporate 60.1 98 Alex Stern Family Foundation ND Independent 60.0 99 The Bank of America Charitable Foundation, Inc. NC Corporate 59.6 100 Jaquelin Hume Foundation CA Independent 59.0 101 The Robert W. Wilson Charitable Trust NY Independent 58.0 102 Bauman Family Foundation, Inc. DC Independent 57.7 103 The Irving Harris Foundation IL Independent 57.7 104 Christian A. Johnson Endeavor Foundation NY Independent 57.6 105 Kate B. Reynolds Charitable Trust NC Independent 57.3 106 Sarah Scaife Foundation, Inc. PA Independent 56.7 107 The Jess & Sheila Schwartz Family Foundation AZ Independent 55.6 108 MDU Resources Foundation ND Corporate 55.3 109 Kellogg's Corporate Citizenship Fund MI Corporate 55.1 110 Amon G. Carter Foundation TX Independent 54.6

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 119 National Committee for Responsive Philanthropy

FOUNDATIONS MEETING NCRP'S CRITERIA FOR PHILANTHROPY AT ITS BEST GENERAL OPERATING SUPPORT (AS A PROPORTION OF TOTAL GIVING) (CONTINUED)

FOUNDATION NAME STATE TYPE % 111 The Thomas and Stacey Siebel Foundation CA Independent 54.4 112 Thomas & Dorothy Leavey Foundation CA Independent 53.7 113 Tiger Foundation NY Independent 53.5 114 The Judy and Michael Steinhardt Foundation NY Independent 53.3 115 Alabama Power Foundation, Inc. AL Corporate 53.3 116 The California Wellness Foundation CA Independent 53.0 117 The William and Flora Hewlett Foundation CA Independent 52.9 118 Berkshire Taconic Community Foundation MA Community 52.5 119 J. F Maddox Foundation NM Independent 52.4 120 U.S. Bancorp Foundation, Inc. MN Corporate 51.9 121 The Denver Foundation CO Community 51.7 122 Z. Smith Reynolds Foundation, Inc. NC Independent 51.5 123 Jay and Betty Van Andel Foundation MI Independent 51.4 124 Lozier Foundation NE Independent 50.9 125 The Morris and Gwendolyn Cafritz Foundation DC Independent 50.0

PERCENT OF FOUNDATIONS Giving for multi-year support MEETING NCRP’S CRITERIA FOR MULTI- For multi-year grants, 483 foundations of our 809 YEAR FUNDING foundation sample provided at least one multi-year grant during the three-year time period. Just below 60 percent (59.7 percent) of the total sample provid- ■ Foundations 16.3% ed at least one multi-year grant. This number is dis- Designating 50% or turbing, considering the stated constraints on small- More of Grant Dollars er foundations’ ability to provide this type of sup- for Multi-Year Funding port. Because the Foundation Center tracks only ■ Foundations larger foundations, if smaller foundations were Designating Less Than 50% of Grant Dollars included in the sample, the numbers would be even for Multi-Year Funding lower. Interestingly, these findings align with self- 83.7% reported data from the 2008 GEO survey that found that 60 percent of foundations, regardless of asset size, provided multi-year grants sometimes, often or always.438 For foundations that made any multi-year grants, the median when measuring multi-year grants as a proportion of overall grantmaking was just below 34 percent (33.7). Leading the field, 132, or 16.3 percent of the total NCRP sample, provided 50 percent or more of their grant dollars as multiyear grants.439 This is the benchmark for Philanthropy at Its Best. Once again, we remind readers that just because a grantmaker is not listed here does not necessarily mean it does not meet or exceed this benchmark for multi-year grants. Various reasons cited earlier could lead to their exclusion from this list of field leaders.

120 FOUNDATIONS MEETING NCRP’S CRITERIA FOR PHILANTHROPY AT ITS BEST MULTI-YEAR FUNDING (AS A PROPORTION OF TOTAL GIVING)

FOUNDATION NAME STATE TYPE % 1 Vermont Community Foundation VT Community 98.7 2 W. K. Kellogg Foundation MI Independent 97.1 3 The Community Foundation of Louisville, Inc. KY Community 96.0 4 William T. Grant Foundation NY Independent 93.3 5 Bill & Melinda Gates Foundation WA Independent 93.3 6 The Robert Wood Johnson Foundation NJ Independent 91.6 7 Josiah Macy, Jr. Foundation NY Independent 91.6 8 The California Wellness Foundation CA Independent 90.8 9 The Andrew W. Mellon Foundation NY Independent 90.5 10 The McKnight Foundation MN Independent 88.8 11 John D. and Catherine T. MacArthur Foundation IL Independent 88.3 12 Carnegie Corporation of New York NY Independent 87.9 13 Lumina Foundation for Education, Inc. IN Independent 87.2 14 Hillman Foundation PA Independent 87.1 15 Alfred P. Sloan Foundation NY Independent 86.9 16 The Bodman Foundation NY Independent 85.7 17 Mary Flagler Cary Charitable Trust NY Independent 85.7 18 Helen Bader Foundation, Inc. WI Independent 84.8 19 John S. and James L. Knight Foundation FL Independent 84.8 20 Foundation for Child Development NY Independent 84.1 21 The Starr Foundation NY Independent 83.6 22 The Joyce Foundation IL Independent 82.8 23 Hazel Ruby McQuain Charitable Trust WV Independent 81.6 24 Arizona Community Foundation AZ Community 80.4 25 Richard and Rhoda Goldman Fund CA Independent 80.2 26 Dyson Foundation NY Independent 79.6 27 Charles Stewart Mott Foundation MI Independent 79.4 28 The Meadows Foundation, Inc. TX Independent 79.0 29 The Dallas Foundation TX Community 78.5 30 Wallace Alexander Gerbode Foundation CA Independent 78.3 31 The Ford Foundation NY Independent 78.2 32 The New Hampshire Charitable Foundation NH Community 77.6 33 Community Foundation Silicon Valley CA Community 77.0 34 The William Penn Foundation PA Independent 77.0 35 Triangle Community Foundation NC Community 76.1 36 The Achelis Foundation NY Independent 76.0 37 The Denver Foundation CO Community 76.0 38 ExxonMobil Foundation TX Corporate 75.4 39 Omaha Community Foundation NE Community 74.9 40 The Cleo Foundation CA Independent 74.8 41 The Philadelphia Foundation PA Community 74.7 42 Lavelle Fund for the Blind, Inc. NY Independent 74.7 43 Meyer Memorial Trust OR Independent 74.6 44 Doris Duke Charitable Foundation NY Independent 74.5 45 The Greater Des Moines Community Foundation IA Community 74.2 46 Arkansas Community Foundation, Inc. AR Community 73.9 47 The Clark Foundation NY Independent 73.7

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 121 National Committee for Responsive Philanthropy

FOUNDATIONS MEETING NCRP’S CRITERIA FOR PHILANTHROPY AT ITS BEST MULTI-YEAR FUNDING (AS A PROPORTION OF TOTAL GIVING) (CONTINUED)

FOUNDATION NAME STATE TYPE % 48 The Hamilton Community Foundation, Inc. OH Community 73.7 49 The Columbus Foundation and Affiliated Organizations OH Community 73.5 50 Santa Barbara Foundation CA Community 73.4 51 The Ahmanson Foundation CA Independent 73.2 52 Jessie Smith Noyes Foundation, Inc. NY Independent 73.2 53 The Gamble Foundation CA Independent 72.4 54 The F. B. Heron Foundation NY Independent 72.4 55 The William and Flora Hewlett Foundation CA Independent 72.2 56 Roy A. Hunt Foundation PA Independent 71.9 57 M. J. Murdock Charitable Trust WA Independent 71.7 58 The Pittsburgh Foundation PA Community 71.5 59 Bush Foundation MN Independent 71.5 60 Dorot Foundation RI Independent 71.4 61 The Community Foundation for the National Capital Region DC Community 71.4 62 The Oregon Community Foundation OR Community 71.2 63 Bella Vista Foundation CA Independent 70.9 64 The Kimball Foundation CA Independent 70.7 65 Boston Foundation, Inc. MA Community 70.6 66 The Bolthouse Foundation CA Independent 70.5 67 The Rockefeller Foundation NY Independent 70.3 68 The Maine Community Foundation, Inc. ME Community 70.3 69 MetLife Foundation NY Corporate 70.1 70 The Melville Charitable Trust MA Independent 69.9 71 The Dayton Foundation OH Community 69.8 72 The Reinberger Foundation OH Independent 69.8 73 Greater Milwaukee Foundation WI Community 69.4 74 F. M. Kirby Foundation, Inc. NJ Independent 69.3 75 The Greater Cincinnati Foundation OH Community 69.3 76 Ben B. Cheney Foundation WA Independent 69.2 77 William Randolph Hearst Foundation NY Independent 69.2 78 Berkshire Taconic Community Foundation MA Community 69.0 79 AT&T Foundation TX Corporate 68.8 80 Community Foundation of Greater Memphis TN Community 68.7 81 Evelyn and Walter Haas, Jr. Fund CA Independent 68.6 82 The Arthur Vining Davis Foundations FL Independent 68.0 83 The San Francisco Foundation CA Community 67.9 84 The Henry Luce Foundation, Inc. NY Independent 67.6 85 The San Diego Foundation CA Community 67.5 86 The Fund for New Jersey NJ Independent 67.3 87 The Bothin Foundation CA Independent 67.3 88 Hartford Foundation for Public Giving CT Community 67.0 89 Hall Family Foundation MO Independent 66.8 90 The Retirement Research Foundation IL Independent 66.3 91 Rockefeller Brothers Fund, Inc. NY Independent 65.6 92 The John M. Lloyd Foundation CA Independent 65.5 93 The California Endowment CA Independent 64.7

122 FOUNDATIONS MEETING NCRP’S CRITERIA FOR PHILANTHROPY AT ITS BEST MULTI-YEAR FUNDING (AS A PROPORTION OF TOTAL GIVING) (CONTINUED)

FOUNDATION NAME STATE TYPE % 94 Con Alma Health Foundation, Inc. NM Independent 64.7 95 Gannett Foundation, Inc. VA Corporate 64.4 96 The Hearst Foundation, Inc. NY Independent 64.4 97 The Andy Warhol Foundation for the Visual Arts NY Independent 64.4 98 The Minneapolis Foundation MN Community 64.4 99 The Ford Family Foundation OR Independent 64.4 100 The Annie E. Casey Foundation MD Independent 64.1 101 Community Foundation for Southeast Michigan MI Community 63.4 102 The Seattle Foundation WA Community 63.0 103 Peninsula Community Foundation CA Community 62.8 104 The Kovner Foundation NJ Independent 62.8 105 The Thomas and Stacey Siebel Foundation CA Independent 62.7 106 Lilly Endowment Inc. IN Independent 62.5 107 Foellinger Foundation, Inc. IN Independent 62.5 108 The Chicago Community Trust IL Community 61.2 109 The Cleveland Foundation OH Community 60.4 110 The Community Foundation of Western North Carolina, Inc. NC Community 60.2 111 Open Society Institute NY Operating 59.7 112 The Burton D. Morgan Foundation OH Independent 59.1 113 Jessie Ball duPont Fund FL Independent 59.1 114 The New York Community Trust NY Community 58.7 115 Otto Bremer Foundation MN Independent 58.1 116 The William H. Donner Foundation NY Independent 58.0 117 McGregor Fund MI Independent 57.5 118 Mote Scientific Foundation, Inc. FL Independent 57.2 119 The Ella West Freeman Foundation LA Independent 57.1 120 The James Irvine Foundation CA Independent 56.1 121 The George Gund Foundation OH Independent 56.0 122 The Blandin Foundation MN Independent 55.6 123 The Skillman Foundation MI Independent 55.2 124 The Ave Maria Foundation MI Independent 55.0 125 Fannie Mae Foundation DC Corporate 54.8 126 Energy Foundation CA Independent 53.7 127 The Grainger Foundation Inc. IL Independent 52.9 128 Community Foundation of Greater Fort Wayne, Inc. IN Community 51.9 129 The Icahn Family Foundation NY Independent 51.7 130 Community Foundation of Greenville, Inc. SC Community 51.5 131 Helena Rubinstein Foundation, Inc. NY Independent 51.1 132 The Bristol-Myers Squibb Foundation, Inc. NY Corporate 50.2

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 123 National Committee for Responsive Philanthropy

Setting the bar for Ethics and Commitment aggregate statistics on foundation grants drawn from The Ethics and Commitment chapters of this book the latest edition of the Nonprofit Almanac. NCRP is identify specific grantmaking institutions that meet confident that these data present a reliable picture of the benchmarks established by these criteria. For sector-wide giving trends across the grantmaking numerous reasons, NCRP is unable to provide an community. At a future date, NCRP may conduct fur- accurate analysis of the proportion of funders that ther research by analyzing grants on individual 990 meet or exceed the thresholds established in these PF forms, but in the interim, the aggregate statistics chapters. For example, to assess the proportion of present a reasonably solid and defensible quantitative foundations that do not compensate trustees in any supplement to the rationale for why this metric was form, including allowing them to make discretionary established at this level.440 As also noted in the narra- grants, requires a centralized database that maintains tive, mission investing, although practiced increasing- up-to-date data information drawn from the IRS’s form ly by many foundations, is not a required piece of 990 PF’s and primary data collection conducted to financial information disclosed on either the IRS’s 990 examine foundation financial operations not reflected or 990 PF forms. Thus, NCRP relied on the FSG on the tax form (such as discretionary grantmaking in Social Impact Advisors’ analysis of mission investing lieu of monetary compensation). There also is no and worked with FSG and individual foundation database that records whether a foundation includes executives and financial managers to secure the grantee or community representatives on its board of detailed mission investing data presented in this chap- directors. Until such time as these data become avail- ter. The lack of publicly available mission investing able, it is not possible to analyze individual funder data is a disservice to grantmakers: some exemplary practices with rigor and credibility. funders are not getting the credit they well might The exemplary foundations cited in the Ethics deserve if these data were available publicly. NCRP chapter that maintain and implement policies and encourages more grantmaking institutions to provide practices that ensure ethical behavior are drawn from detailed and comprehensive information on the non- secondary analysis and individual foundation grantmaking ways in which they are advancing their research. Thus, for example, those funders that sub- mission. By investing 25 percent of its assets using scribe to and publicly disclose conflict of interest and investment screens, shareholder proxy voting and whistleblower protection policies are drawn from proactive mission investing, a funder demonstrates these sources. Further, there is no way to ensure that exemplary stewardship of the partly public dollars a grantmaking institution that maintains these policies with which it is entrusted. As with the primary data in fact implements them. Future NCRP research and analyses for Values and Effectiveness, not being analysis from others working in the field may provide included as a “field leader” does not imply that a spe- some more robust data for analysis of disaggregated cific funder fails to meet that criterion; rather, it is the data. Regarding disclosure of relevant information, result of the problems with data availability noted the same issues arise as with maintaining practices throughout this appendix. and policies that ensure ethical behavior. A final caveat that applies to the benchmarks for these two metrics is that much of the data are qualitative in nature and would require comprehensive analysis of individual annual reports, focus group discussions and telephone interviews to gauge individual grantmaker theory and practice. NCRP or others in the sector may undertake this work at a future point, but in the interim, NCRP encourages more grantmakers to either include this information in annual reports or make the information readily available on funder web sites for public disclosure. The Commitment chapter establishes a generous payout rate with a minimum of 6 percent of grant dollars allocated for grants only. The narrative presents

124 NOTES FOR DATA APPENDIX

430. NCRP recognizes that immigrants and refugees are two dis- 436. The two metrics described in this criterion are not additive. It crete groups but the current Foundation Center classification is assumed that the 25 percent of grant dollars going for advo- system records these two groups together. cacy and organizing work will be a subset of the 50 percent 431. Lesbian, Gay, Bisexual, Transgendered or Questioning. of grant dollars going for the intended benefit of marginalized 432. The Foundation Center refers to these groups as “Special communities. Population Groups.” 437. The Foundation Center’s grants classification system does not 433. The lower and upper bound figures presented in this table are differentiate between unrestricted core support versus negoti- from various years in the time period of 1998 through 2006; ated core support; both are included in the general operating in other words, these bounds do not represent the figures from support category. the start and end years but instead present data on overall giv- 438. Harder+Company. Grantmaking Practices that Support ing trends in the full Foundation Center samples for the entire Grantee Success: Survey Report, (Washington, D.C.: time period. Grantmakers for Effective Organizations, October 2008), 27. 434. The authors defined social justice philanthropy as “the grant- GEO’s analysis identified this figure as statistically significant; ing of philanthropic contributions to nonprofit organizations the p-value for this statistic was <0.001 meaning that the based in the United States and other countries that work for probability that their findings do not reflect reality based on structural change in order to increase the opportunity of those self-reported multiyear funding is less than 1 in 1,000. who are the least well off politically, economically, and 439. The two metrics described in this criterion are not additive. socially.” Importantly, this definition is not intended to convey For example, a grant that is both multiyear and for general or support any specific ideological or political position. support counts toward meeting both measures. 435. The search set is based on the Foundation Center’s grants sam- 440. Because the grants data analysis of this section in the chapter ple database, which includes all grants of $10,000 or more presents the data disaggregated by foundation asset size, awarded to organizations by a sample of 1,172 larger founda- grantmakers can compare the proportion of their portfolios tions for circa 2004, 1,154 for circa 2005, and 1,263 for circa allocated to grants only with peer institutions to assess their 2006. For community foundations, only discretionary grants individual performances. are included. Grants to individuals are not included in the file.

Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact 125 National Committee for Responsive Philanthropy

NCRP STAFF Meredith Brodbeck COMMUNICATIONS ASSISTANT Julia Craig RESEARCH ASSISTANT Aaron Dorfman EXECUTIVE DIRECTOR Kevin Faria DEVELOPMENT DIRECTOR Niki Jagpal RESEARCH DIRECTOR Melissa Johnson FIELD DIRECTOR Kevin Laskowski FIELD ASSOCIATE Anna Kristina (“Yna”) C. Moore COMMUNICATIONS DIRECTOR Lisa Ranghelli SENIOR RESEARCH ASSOCIATE Beverley Samuda-Wylder SENIOR ADMINISTRATIVE ASSOCIATE

NCRP BOARD OF DIRECTORS

OFFICERS David R. Jones (CHAIR) COMMUNITY SERVICE SOCIETY OF NEW YORK Diane Feeney (VICE CHAIR) FRENCH AMERICAN CHARITABLE TRUST Dave Beckwith (SECRETARY) NEEDMOR FUND Rhoda Karpatkin (TREASURER) CONSUMERS UNION

DIRECTORS Marilyn Aguirre-Molina LEHMAN COLLEGE, CITY UNIVERSITY OF NEW YORK Christine Ahn KOREA POLICY INSTITUTE Andrea Alexander CHINOOK WIND ENTERPRISES Lana Cowell NATIONAL ALLIANCE FOR CHOICE IN GIVING* Louis T. Delgado INDEPENDENT CONSULTANT* Robert Edgar COMMON CAUSE Pablo Eisenberg PUBLIC POLICY INSTITUTE, GEORGETOWN UNIVERSITY Richard Farias TEJANO CENTER FOR COMMUNITY CONCERNS* Marjorie Fine CENTER FOR COMMUNITY CHANGE Cynthia Guyer SAN FRANCISCO SCHOOLS ALLIANCE Judy Hatcher ENVIRONMENTAL SUPPORT CENTER Priscilla Hung GRASSROOTS INSTITUTE FOR FUNDRAISING Larry Kressley PUBLIC WELFARE FOUNDATION* Gara LaMarche THE ATLANTIC PHILANTHROPIES Pete Manzo UNITED WAYS OF CALIFORNIA Nadia Moritz THE YOUNG WOMEN’S PROJECT* Russell Roybal NATIONAL GAY AND LESBIAN TASK FORCE William Schulz CENTER FOR AMERICAN PROGRESS Gary Snyder NONPROFIT IMPERATIVE Helen Vinton SOUTHERN MUTUAL HELP ASSOCIATION Sherece Y. West WINTHROP ROCKEFELLER FOUNDATION Jodi Williams COMMUNITY SHARES OF MINNESOTA*

PAST BOARD CHAIRS Paul Castro JEWISH FAMILY SERVICE OF LOS ANGELES John Echohawk NATIVE AMERICAN RIGHTS FUND Pablo Eisenberg PUBLIC POLICY INSTITUTE, GEORGETOWN UNIVERSITY Terry Odendahl NEW MEXICO ASSOCIATION OF GRANTMAKERS

*Past NCRP directors who termed off during project finalization. Organization affiliation for identification purposes only.

126 Take the Philanthropy at Its Best Interactive Self-Test!

Go online to www.ncrp.org/paib/self-test and take an interactive self-test to determine to what extent your foundation meets the criteria and benchmarks for Philanthropy at Its Best.

ALSO ONLINE: > Download the book and executive summary for free or order your copies > Endorse the criteria along with other foundation and nonprofit leaders > Tell your colleagues about the criteria > Become an NCRP member > Sign up to receive Roundup, our monthly e-newsletter www.ncrp.org Questions or comments? You can reach us at (202) 387-9177 or [email protected].

NCRP promotes philanthropy that serves the public good, is responsive to people and communities with the least wealth and opportunity, and is held accountable to the highest standards of integrity and openness. CRITERIA FOR PHILANTHROPY AT ITS BEST Benchmarks to Assess and Enhance Grantmaker Impact © March 2009, National Committee for Responsive Philanthropy

“ he latest crisis in the global economy reminds us that we are all in it together when it comes to the political, econom- Tic and environmental challenges ahead. Philanthropy certainly has the resources and potential to help tackle the deeper, structural causes of inequality and injustice. NCRP’s criteria are exactly what foundations need to transform our institutions and grantmaking in ways that serve low-income families and contribute to a just and equitable society.”

—Luz Vega-Marquis, President & CEO, Marguerite Casey Foundation

“ he challenge isn’t just to see how many of the criteria your foundation can achieve. TThe key is to engage board and staff in why the criteria matter for your institution and how you can make progress towards being your best. Every foundation will benefit from engaging in that process, because it speaks directly to your impact and your effectiveness in meeting your mission.”

—Sharon B. King, President, F. B. Heron Foundation

“ CRP’s criteria were created from philanthropy at its best, and they are an excellent Nstarting point for what could be. It’s not about telling foundations what’s wrong with them. It’s about getting on the same page, and making a shared commitment to investing in grassroots democracy and local leadership so all communities have a stake in this moment of positive change.”

—Hugh Hogan, Executive Director, North Star Fund

“ merica needs an open, self-critical and wide-ranging con- Aversation about philanthropy and the public good. NCRP’s criteria are a great place to start.”

—Michael Edwards, Distinguished Senior Fellow, Demos

“ t a time of massive demographic change, targeting funding to, and ensuring the representation of, people of Acolor in philanthropy isn’t about political correctness, it’s about having the expertise to develop and implement solutions that work in real communities, in the real world. In these and many other respects, NCRP’s benchmarks represent standards that the best grantmakers already meet and that all should aspire to.”

—Janet Murguia, President, National Council of La Raza